The government…introduced a bill in the National Assembly seeking to ban the purchase of cars, properties, and the opening of bank accounts by “ineligible persons”. However, it proposed allowing non-filer family members of eligible persons to carry out such transactions….In a likely controversial move, the government also sought parliament's nod to share taxpayers’ confidential data with commercial banks and with privately hired tax auditors….The Tax Laws Amendment Bill 2024, gives private auditors all powers available under the income tax laws….Finance Minister Muhammad Aurangzeb introduced the Bill in the lower house of parliament that also sought the powers to freeze bank accounts and confiscate businesses and properties of sales tax unregistered persons—Govt tightening the noose around tax dodgers, The Express Tribune, December 19, 2024
Collection of tax where it is NOT due is as detestable as its non-collection where it is due—Justice Nasim Sikander in CIT Companies, Lahore v State Cement of Corporation (Pvt) Ltd, Lahore 2002 PTD 1603
The Tax Laws (Amendment) Bill, 2024, tabled in the National Assembly by Federal Minister for Finance and Revenue, Muhammad Aurangzeb, on December 18, 2024, proposing amendments to the Income Tax Ordinance, 2001, and Sales Tax Act, 1990, imposing restrictions on right to acquire and dispose of the property in Pakistan and freedom of doing trade and business, has raised serious questions about their constitutional validity under Articles 4, 8, 14, 18, 23, 25 of the Constitution of Islamic Republic of Pakistan [“the Constitution”].
It is worth mentioning that a similar condition, made in the Finance Act, 2018, barring the “non-filers”, residents as well as non-residents, to buy immovable property exceeding Rs. 5 million, was later withdrawn, as it was anti-business as well as unconstitutional. The National Assembly, as usual, adopted the Finance Bill, 2018 as a rubber stamp and did not bother to check whether it could impose such a condition that was directly in violation of Articles 4, 23, and 25 of the Constitution.
It is a well-established law that the Legislature, even if has the power and legislative competence to enact a law, should not violate any of the fundamental rights of the citizens, guaranteed under the Constitution. In the case of any conflict with any fundamental right, the law to that extent will be ultra vires of the Constitution having no legal force, void ab initio and non-est.
The ‘Statement of Object and Reasons’ annexed with the Tax Laws (Amendment) Bill, 2024 reads as under:
“The purpose of this bill is to give effect to the proposals for effective compliance to the tax laws and to ensure that taxes are paid according to income and consumption level, to complete the value chain of businesses and generate financial resources for economic development, as proposed by the Federal Government”.
The purpose and object of the Bill as stated above appears convincing for better tax compliance and broadening of tax base in Pakistan. However, a plain reading of some of the provisions contained in the Bill shows that these are in clear violation of the fundamental rights enshrined in the Constitution. Unfortunately, the Bill was not made available for public debate, and no effort was made to seek input from the tax bars and experts in the field of taxation and constitutional law. One hopes that members of the National Assembly before approving this Money Bill will consider the following:
- New sections 14AC and 14AD in the Sales Tax Act, 1990 empower the Commissioner of Inland Revenue in respect of “any person who fails to get registered” under this law to:
- “direct banking companies, scheduled banks and other financial institutions, through an order in writing, to bar operation of the bank account” and
- “direct the property registering authority, through an order in writing, to bar transfer of immovable property”.
Other coercive measures suggested against such a person can be:
(a) seal the business premises;
(b) seize moveable property; or
(c) appoint a receiver for the management of the taxable activity of a person.
The laws of sales tax/VAT all over the world provide compulsory registration, if a taxable person fails to do so voluntarily coupled with penalty and prosecution for willful default. Why do the wizards in the Federal Board of Revenue (FBR) want draconian laws and destructive powers to stop business operations and freeze/seize their properties? The remedies proposed against the above extremely destructive actions are by way of approaching the departmental authorities, which is a gross violation of Article 10A of the Constitution.
- New section 114C in the Income Tax Ordinance, 2001, in the case of an “ineligible person” [defined for the purpose of this section, is one who is not an “eligible person”] places the following bars/restrictions:
- Cannot book, purchase, or get registration of a motor vehicle other than rickshaw, motorcycle rickshaw or tractor, a pick-up vehicle having engine capacity up to 800 CC, and trucks and buses subject to restrictions and limitations as may be notified by the Board from time to time.
- Make any application or request to any authority responsible for registering, recording, or attesting transfer of any immovable property, more than such value in aggregate in a tax year as may be notified by the FBR from time to time.
- To sell, open an account for the sale of securities, mutual funds, etc.
- Open or maintain an already opened current or a savings bank or investor portfolio securities account, except Asaan (easy) account.
- Cash withdrawal from any of the bank accounts of any person, exceeding the amount as may be notified by the FBR from time to time.
The definition of “eligible person” is “a person, who has filed a return of income for the tax year immediately preceding the year of transaction”, mentioned above, and he must also possess “sufficient resources in the wealth statement in case of an individual, or financial statement in case of a company or an association of persons, as the case may be, for such transaction”.
As regards an individual, the “eligible person” will include his/her immediate family members that are parents, spouse, son (below the age of twenty-five years), daughter (who is unmarried, widowed, or divorced), or a special child who has a long-term physical, mental, intellectual or sensory impairment which in interaction with various barriers may hinder his full and effective participation in society on an equal basis with others.
The Bill is self-contradictory. It wants to keep intact the category from which withholding tax is being extorted at a higher rate, yet wants them to be filers!
The Bill, as per a news report is “conceived by FBR Chairman Rashid Langrial in order to collect due taxes from people, either filers or non-filers—allowed an eligible person to make major purchases of up to 130% of the value of cash and assets, declared in his last tax return and the wealth statement”. It further adds: Unlike the announcement in the past, the government has not abolished the non-filer category from the law nor did it delete the 10th Schedule of the Income Tax Ordinance (ITO) that carries higher rates for the non-filers. Instead, the government introduced a new category of 'eligible person'.
As evident from above, the Bill is self-contradictory. It wants to keep intact the category from which withholding tax is being extorted at a higher rate, yet wants them to be filers! The easy way is bulk registration of all adult mobile users. Thus, abolishing the undesirable non-filer category—however, FBR hooked on easy money wants to have a cake and eat it too! Placing restrictions on business operations as proposed in the Bill will not only harm the business environment and any new investment, domestic and foreign but is also in violation of Article 18 of the Constitution, which reads:
Freedom of trade, business, or profession
Subject to such qualifications, if any, as may be prescribed by law, every citizen shall have the right to enter upon any lawful profession or occupation, and to conduct any lawful trade or business:
Provided that nothing in this Article shall prevent-
(a) the regulation of any trade or profession by a licensing system; or
(b) the regulation of trade, commerce, or industry in the interest of free competition therein; or
(c) The carrying on, by the Federal Government or a Provincial Government, or by a corporation controlled by any such Government, of any trade, business, industry or service, to the exclusion, complete or partial, of other persons”.
As regards the restrictions placed on property, Article 23 of the Constitution gives inalienable fundamental right that is ignored in the Bill. It says:
“Every citizen shall have the right to acquire, hold, and dispose of the property in any part of Pakistan, subject to the Constitution and any reasonable restrictions imposed by law in the public interest”.
The condition that an “ineligible person” cannot purchase property is neither reasonable nor in the public interest. Why should a non-resident, not liable to tax in Pakistan or a resident having below taxable income, be forced to file a return in order to acquire property? In any case, FBR gets information about the purchase of such properties through a withholding tax mechanism. The Commissioner can issue notice for filing of return and wealth statement if the purchaser is liable to tax and pays high tax at the time of purchase. How can his fundamental right guaranteed in Article 23 be infringed?
Millions of Pakistanis, not earning taxable income, pay advance/adjustable income tax. They are not required to file income tax returns. Why are they being compelled to file returns and be exploited by unscrupulous officials and tax advisers? This is a blatant violation of Article 4(c) of the Constitution, which says, “No person shall be compelled to do what the law does not require him to do”. Malicious propaganda campaign, a lamentable act, against millions of Pakistanis who pay advance income tax as mobile/internet users though not liable to tax must stop. They are contributing billions to national Kitty even though the law does not require them to do so. Withholding provisions are unconstitutional in the case of those who are not earning taxable income.
Bureaucracy/revenuecracy wants to exert despotic control over citizens, which is possible only through complex codes and cumbersome procedures
In these columns, for the last many years, concrete, pragmatic, and executable measures have been suggested for fundamental reforms in the rotten and outmoded tax system to facilitate accelerated growth of the economy that will automatically yield more taxes. After all, taxes are by-products of growth. We need at least an 8% growth rate for a decade to provide over 3 million jobs every year to our youth alone.
To achieve this target, a comprehensive study and presentation, made before the Senate Standing Committee on Revenue & Finance, has been deliberately ignored by economic managers and FBR stalwarts. They even did not bother to reflect upon many useful suggestions made by the Tax Reforms Commission established in 2016 and empirical joint research by PIDE and PRIME. The reason is that bureaucracy/revenuecracy wants to exert despotic control over citizens, which is possible only through complex codes and cumbersome procedures. The study gives a roadmap for collecting revenues of Rs. 34 trillion at the federal level alone that can make Pakistan self-reliant. Obviously, the rulers having vested interests want Pakistan to remain entrapped in the debt prison.