Unconstitutionally Levying A Petroleum Levy

Since the amendment in the Petroleum Products (Petroleum Levy) Ordinance, 1961 as part of a Money Bill was unconstitutional in 2018, all actions taken thereunder are untenable in law.

Unconstitutionally Levying A Petroleum Levy

The federal government has set an ambitious target of Rs1,281 billion on account of Petroleum Levy (PL) on petroleum products for the upcoming fiscal year 2024-25. This projection marks an increase of Rs321 billion over the revised estimate of Rs960 billion for the current fiscal year 2023Govt targets Rs1281b from petroleum levy, The Express Tribune, June 7, 2024

Raising taxes when it’s not necessary can undermine fiscal stimulus, and raising the wrong kind of taxes can leave a nation vulnerable to accelerating inflationStephanie Kelton in The Deficit Myth 

The Finance Bill 2024, presented in the National Assembly, along with annual federal budget for fiscal year 2024-25, proposes substitution of the Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 (XXV of 1961), intending to raise the petroleum levy (PL) rates. In case this amendment is approved as part of Money Bill, it will not only be a gross violation of the Constitution, but also going to extensively increase the financial woes of the already struggling common people.

According to the proposed amendment, high-speed diesel oil (HSDO) and motor gasoline will have a maximum PL rate of Rs. 80 per litre, up from Rs. 60. This increment will exacerbate inflation, impacting transportation and overall cost of goods. Superior kerosene oil (SKO) is the only item to remain at Rs. 50 per litre (which is exorbitant), while other fuels like light diesel oil (LDO), high-octane blending component (HOBC) and E-10 gasoline to increase to Rs. 75 per litre from Rs. 50. The domestically produced liquefied petroleum gas (LPG) to stay at Rs. 30,000 per metric ton. The proposed increases in PL rates are bound to enhance the cost of living, push inflation and stall economic growth, challenging both consumers and businesses

Besides the inflationary impact of further rise in PL, nobody has yet raised the constitutional position of imposing this non-tax item through  the Money Bill. From where does the government derive power to enhance it without seeking approval from both houses of Parliament? The answer is an amendment made in Petroleum Products (Petroleum Levy) Ordinance, 1961 through Finance Act, 2018 under the government of Pakistan Muslim League (Nawaz)—PMLN. It was in utter violation of the Constitution.

The Finance Act, 2018 substituted Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 authorising maximum imposition at the rate of Rs. 30 per litre on High Speed Diesel Oil, Motor Gasoline, Superior Kerosene Oil, Light Diesel Oil, High Octane Blending Component and E-10 Gasoline. As regards Liquefied Petroleum Gas (produced/extracted in Pakistan), the maximum levy was fixed at Rs. 20,000 per metric ton.

After the above amendment, the Government was authorised to not go to the Parliament and could raise the PL anytime while remaining within the maximum limit. This power was then exercised through administrative orders. Since the government wanted yet another upward revision of the upper limit, it once again approached the National Assembly through Finance Bill 2022. The same was passed on June 29, 2022 amending the Petroleum Products (Petroleum Levy) Ordinance, 1961 (XXV of 1961), allowing the government to increase maximum limit of PL from Rs. 30 to Rs. 50 per litre on all petroleum products and levy Rs.30,000 metric ton on Liquefied Petroleum Gas (produced/extracted in Pakistan).

Now for the third time, a further enhancement is sought to raise upper limit for imposition of PL as narrated above through the Finance Bill 2024, the debate on which will be started after the Eid holiday when the session begins. It is outlandish that how any change in Petroleum Products (Petroleum Levy) Ordinance, 1961 can be made part of Money Bill as PL is a non-tax item.

The law passed in 2018 by then National Assembly amending Petroleum Products (Petroleum Levy) Ordinance, 1961 was unconstitutional. It is worthwhile to mention that in 2011, amendments were made in Petroleum Products (Petroleum Levy) Ordinance, 1961 through Petroleum Products (Petroleum Levy) Amendment Act, 2011, which was passed by both National Assembly and Senate as per the Constitution. It can be seen at the website of Senate of Pakistan.

The substitutions of Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 through Finance Act 2018 and Finance Act 2022, passed by National Assembly on May 18, 2018 and June 30, 2022, respectively, bypassing the Senate was a flagrant violation of the Constitution that remain unnoticed till today.

It was explained by the Supreme Court of Pakistan in Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt.) Ltd through its GM (Finance), Lahore etc. and others [(2016) 114 TAX 385 (S.C. Pak.)] as under:

We may develop this point further; although Article 73(3)(a) of the Constitution states that a Bill shall not be a Money Bill if it provides for the imposition or alteration of a fee or charge for any service rendered, this does not mean that if a particular levy/contribution does not fall within Article 73(2) it must necessarily fall within Article 73(3). Sub-articles (2) and (3) are not mutually exclusive. There may very well be certain levies/contributions that do not fall within the purview of Article 73(3) but still do not qualify the test of Article 73(2) and therefore cannot be introduced by way of a Money Bill, and instead have to follow the regular legislative procedure.

The above decision of the Supreme Court approved the East Pakistan Chrome Tannery’s case of Lahore High Court reported as 2011 PTD 2643 holding as under:

The special legislative procedure is, therefore, an exception and must operate in its restricted scope. Being a special procedure it also has to be construed strictly as it is a deviation from the normal legislative process under the Constitution. Integrity of a money bill must be jealously guarded and matters falling outside the purview of Articles 73(2)(a) to (g) of the Constitution should not be permitted to stealthily crawl into a money bill (at times due to political sophistry of the Government in power) and adulterate its sanctity.

At the time of the passage of the Finance Acts 2018 and 2022, the above judgement of Supreme Court was in the field but nobody in the National Assembly or Senate, raised the issue as to how amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 could have been made through Money Bill. Now, shockingly for the third time, a gross violation of the Constitution is committed by presenting above-referred amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 through Finance Bill 2024 by the coalition government of PMLN. It is high time that Senators take note of this constitutional violation while examine the Bill under Article 73(1) of the Constitution which reads as under:

Notwithstanding anything contained in Article 70, a Money Bill shall originate in the National Assembly:

Provided that simultaneously when a Money Bill, including the Finance Bill containing the Annual Budget Statement, is presented in the National Assembly, a copy thereof shall be transmitted to the Senate which may, within fourteen days, make recommendations thereon to the National Assembly. 

It is cardinal principle of law that if foundation of any law is unlawful then superstructure automatically collapses. Since the very amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 as part of Money Bill was unconstitutional in 2018, all actions taken thereunder are untenable in law.

If Opposition is sincere, it must point out this violation in Finance Bill 2024 committed third time by the stalwarts of PMLN, or their protest against the Budget 2024 would be nothing but a mere lip-service. The Supreme Court may also be approached under Article 184(3) for this naked and brazen violation of the Constitution. 

The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE)