All those who are made withholding agents should challenge it under the Constitution. The legislature passes such laws on the recommendation of FBR after approval by the Cabinet, as it has never taken note of this gross violation of the supreme law of the land. The Supreme Court of Pakistan and High Courts under the Constitution are mandated to protect the fundamental rights of citizens, but unfortunately, forced labor - duties as withholding agents under the Income Tax Ordinance, 2001) have not been examined from the perspective of Article 11(2) of the Constitution.
The judicial interpretation of “forced labor,” as used in Article 11(2) of the Constitution, even covers forcing somebody to do which they are not willing to perform even for consideration (Enforcement of Fundamental Rights, Constitutional Case No. 1 of 1988, decided on 18/09/1988, reported as 1989 SCMR 139 and Human Rights Commission of Pakistan v Federation of Pakistan PLD 2009 Supreme Court 507).
FBR, as every year, has asked stakeholders to send proposals for budget 2023-24 for income tax “preferably” in a ‘prescribed’ format, and for customs, by February 27 2023 and March 1, 2023, respectively. This yearly exercise, rather a ritual, needs analysis from the perspective of Constitution.
Our existing tax policy is myopic, ill-directed, regressive, anti-growth and unfair. The state’s tax machinery is both inefficient and oppressive. The exclusive focus on meeting revenue targets, without evaluating its impact on the economy, has crippled our trade and industry, especially after following the dictates of the foreign lenders. The effects of prescriptions by World Bank and International Monetary Fund to fix the ailing economy and anti-growth tax system are discussed in detail in Tax Reforms in Pakistan: Historic & Critical View, published by PIDE.
Pakistan needs to move towards a fairer and simpler tax system, that can yield sufficient resources for the State—as defined in Article 7 of the Constitution—for welfare of citizens. Details of such proposals can be found here.
The legislative work related to framing tax policy and proposing changes in tax codes has been unconstitutionally exercised by FBR, and National Assembly just acts as a rubber stamp. The result is that the FBR has failed to collect actual tax potential—which is not less than Rs. 12 trillion—and is also destroying trade and business growth with its irrational and oppressive tax policies as elaborated elsewhere.
This article is, however, confined to examining the constitutional jurisdiction of the FBR being part of Executive to seek tax proposals and prepare Finance Bill, which is none of its business. In fact, it amounts to a flagrant violation of the Constitution. This is sole responsibility of the Legislature as held by the Supreme Court in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak) and discussed in detail in the forthcoming paragraphs. The Constitution forbids any of the organs to usurp or meddle into the matters of other organs. Usurping the powers of an organ by another organ or organs leads to complete fiasco as elaborated by Supreme Court of Pakistan in a number of cases.
The Constitution is a social contract between the State and citizens. Any infringement of this cannot be taken lightly. How have legislators given powers to FBR to propose Finance Bills when the Constitution makes it clear under Article 77 of the Constitution that “no tax shall be levied for the purposes of the Federation except by or under the authority of the Act of Parliament”? It is the duty of the legislators to decide tax policy, frame tax codes and make amendments in these. The Standing Committees of the federal and provincial assemblies on revenue, having members of all elected parties, should themselves prepare Money Bills after public debates, televised hearings of experts summoned and/or seeking written proposals from stakeholders [see note of Justice Ch. Ijaz Ahmad in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak).
In CIT v Eli Lily (Pvt) Ltd, Justice Ch. Ijaz Ahmad in his separate note held as under,
“Our Constitution is based on trichotomy as law laid down by this Court in various pronouncements such as Zia ur Rehman's case PLD 1973 SC 49, Mian Muhammad Nawaz Sharif's case PLD 1993 SC 473 and Hakim Ali's case PLD 1992 SC 595. The ratio of the aforesaid cases is as follows:--
Legislator to legislate the laws;
Executive to implement;
Judiciary to interpret the Law and Constitution
“2. It is a settled law that the Constitution has to be read as an organic whole as law laid down by this Court in various pronouncements. See Reference by the President PLD 1957 SC 219. The Constitution has confined the aforesaid organs of the state by clear demarcation. The Constitution forbids any of the organs to usurp or meddle into the matters of other organs. Usurping the powers of an organ by another organ or organs leads to complete fiasco. According to my understanding of the Constitution, the machinery of the Constitution has delicately established an equilibrium and harmony among all the organs, limiting them not to go beyond their limits. Every Article of the Constitution has its own significance and importance but Article 4 read with Article 5(2) commands each and every citizen and organ to remain within its bounds as is evident from the statement of the Article. Article 4 directs every citizen to act in accordance with law whereas Article 5(2) demands obedience to the Constitution. Aforesaid Articles were interpreted by the Apex Court of this country and laid down various principles including that even Chief Executive of the country is not omnipotent than the Constitution. See Chaudhry Zahoor Elahi's case (PLD 1975 SC 383) and Zahid Akhtar's case PLD 1995 SC 530... Legislators should legislate after securing necessary views from every stakeholder through deliberations and consultations, keeping in view all the aspects and circumstances at, the time of' framing the law. Generally speaking Constitution is based on trichotomy whereas according to my understanding Constitution is based on quadruple which are as follows:
Legislators;
Executive;
Judiciary;
People of Pakistan.
Constitution is a social binding contract among the aforesaid organs of the State. From preamble to the last Article of the Constitution, duties and obligation have been assigned to every organ of the State so as to get prosperity of the people of Pakistan. It is for this reason the Constitution has to be read as an organic whole for the purpose of maintaining balance in every sphere of life such as opportunities of job, social justice distribution of wealth etc.”
The Supreme Court of Pakistan in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.) held that “neither a Secretary, nor a Minister and nor the Prime Minister are the Federal Government and the exercise, or purported exercise, of a statutory power exercisable by the Federal Government by any of them, especially, in relation to fiscal matters, is constitutionally invalid and a nullity in the eyes of the law. Similarly budgetary expenditure or discretionary governmental expenditure can only be authorized by the Federal Government i.e. the Cabinet, and not the Prime Minister on his own.”
The legislative work related to framing tax policy and proposing changes in tax codes has been unconstitutionally exercised by FBR, and National Assembly just acts as a rubber stamp. The result is that the FBR has failed to collect actual tax potential—which is not less than Rs. 12 trillion—and is also destroying trade and business growth with its irrational and oppressive tax policies as elaborated elsewhere.
The FBR has been encroaching the domain of the legislature for a very long time. FBR’s latest letter C.No.4(72) IT-Budget/2015/19404-R of February 6, 2023 says it is “currently engaged in the formulation of proposals for the Finance Bill 2023.” Under what authority of law is the FBR doing this? To benefit from the collective wisdom of all the stakeholders in framing laws is not their job, but that of Parliament as elaborated in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak) cited above.
Paragraph 2 of the FBR’s letter of February 6, 2023 says:
“2. Your input/suggestions in the following policy areas shall be highly appreciated:-
Broadening of tax base for a wider participation in revenue generation efforts;
Taxation of real Income on progressive basis;
Phasing out of tax concessions and exemptions;
Removal of tax distortions and anomalies;
Facilitation of taxpayers and ease of doing business;
Promoting equity in taxation by introducing measures where incidence of tax is higher on affluent classes. The areas identified above are just illustrative and not exhaustive.
The areas identified above are just illustrative and not exhaustive.”
Tax system is one of the fundamental elements of a constitutional democracy. The important questions such as who is to be taxed, how much and for what purposes, are essentially political questions. These kinds of questions are always resolved through a political process. How tax obligations are to be imposed, administered and enforced are constitutional questions. The imposition, administration and enforcement of taxes raise vital issues about the rule of law, proper division of powers, and the role of judiciary and so on. How does FBR decide these issues and seek proposals from stakeholders?
In CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak), Justice Ch. Ijaz Ahmad in Para 3 of his note held as under:
“Taxing laws in particular must be framed in such a manner that people of Pakistan themselves voluntarily pay taxes encouragingly and honestly. Such a motivation can only be infused among the people by eliminating the fear of being exploited by the machinery and income tax authorities. Such motivation will encourage our people to join the list of taxpaying nations consequently, stabilizing the financial position of the state, helping the nation get rid of the IMF and World Bank. Fixing upper and lower tax limits for all occupants, industrialists and professionals other than salaried people will help inculcate a sense of responsibility and an encouragement among the people. Having achieved the maximum tax limit, the rigors of law should not touch the assessees. Once this legal technique is adopted, every person shall try his level best to reach the maximum level rather than avoiding paying the tax. This formula will also eradicate social evils of concealing, lying and erroneously submitting income tax returns resultantly providing a better and stronger social system...”
The process of seeking tax proposals by FBR and framing Finance Bill is in violation of Article 77 read with Article 162 of the Constitution as explained by the Supreme Court of Pakistan in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v. Federation of Pakistan and Others (2013) 108 TAX 1 (S.C. Pak.) as under,
“Parliament/Legislature alone and not the Government/Executive is empowered to levy tax. As far as delegation of such powers to the Government/Executive is concerned, the same is for the purpose of implementation of such laws, which is to be done by framing rules, or issuing notifications or guidelines, depending upon case to case, as we have come across some of the cases noted hereinabove. But in no case, authority to levy tax for the Federation is to be delegated to the Government/Executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby.”
The delegation of legislative power to the executive to vary a tax or duty renders the entire tax system unconstitutional. The so-called wizards sitting in the FBR have been playing havoc with tax laws by issuing infamous SROs and administrative instructions—granting exemptions or modifying taxes imposed by the Parliament or even levying taxes under the garb of rule-making powers.
The principle of “no taxation without representation,” embodied in Article 77 read with Article 162 of the Constitution, has been perpetually and flagrantly violated in Pakistan—a lamentable act that remains unnoticed at all levels. The prime culprits are members of parliaments who have been delegating their legislative power of levying taxes to the federal government (through FBR). This is in utter violation of Constitution and the decisions of the Supreme Court cited above.
Authority to issue Statutory Regulatory Orders (SROs) for extending any kind of exemption or concession in respect of any tax is gross violation of Article 162 of the Constitution, which says,
“162. Prior sanction of President required to Bills affecting taxation in which Provinces are interested: – No Bill or amendment which imposes or varies a tax or duty the whole or part of the net proceeds whereof is assigned to any Province, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter, moneys are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President.”
The delegated power to an executive authority to frame laws or issue SROs is in utter violation of Article 162, as Parliament itself is not authorized to consider any Bill or amendment that imposes or varies a tax or duty, the whole or part of the net proceeds whereof is assigned to any province, unless the same is first approved by the President. The exercise of delegated powers by FBR to vary a tax or duty through SRO is a blatant violation of Article 162 which has never been challenged and even no suo motu action has been taken by the apex court that is to interpret and enforce the Constitution—this confirms our intellectual bankruptcy in understanding and implementing the supreme law of the land.
The delegation of legislative power to the executive to vary a tax or duty renders the entire tax system unconstitutional. The so-called wizards sitting in the FBR have been playing havoc with tax laws by issuing infamous SROs and administrative instructions—granting exemptions or modifying taxes imposed by the Parliament or even levying taxes under the garb of rule-making powers.
The FBR is merely a tax collection body and nothing else. It should first of all take all those legislators to task who are violating the command of Article 5(2) of the Constitution to pay their taxes diligently. The majority of the legislators, who are under oath to safeguard the Constitution, are the worst violators by not filing tax returns or declaring laughable incomes but accumulating assets worth billions of rupees.
Pakistan is a unique country where the legislators and administrators openly violate the Constitution and even well-educated members of civil society and human right activists ask the courts to take suo motu action or lawyers to file pro bono petitions but keep on voting these violators in power. They never even bother to sue the state functionaries for their unlawful acts or not fulfilling the obligation imposed by laws! This is called “collective apathy” or “learned helplessness.”