The tax codes of Pakistan at the federal level – Sales Tax Act, 1990, Income Tax Ordinance, 2001, Customs Act, 1969 and Federal Excise Act, 2005 – contains numerous exemptions and concessions, majority of these were added, modified or withdrawn through executive orders, called statutory regulatory orders (SROs), without the consent of Parliament in violation of Article 77 of the Constitution of Pakistan. In 2015, the International Monetary Fund (IMF) seriously questioned the abuse of SROs for the benefit of the privileged classes. The power to issue an SRO, as an eyewash, was made subject to approval of Cabinet in ‘extraordinary circumstances’ through Finance Act, 2015. In reality, tax concessions/exemptions available to the elites -judicial-civil complex, businessmen-turned politicians and absentee landlords – continue unabated. The exemptions/concessions available under Sales Tax Act, 1990, facilitate illegal enrichment which make the rich, richer. These are abused by unscrupulous businessmen with the connivance of taxmen and their advisers to get benefit of even taxable supplies by mis-declarations at import and supply stages. Even where correctly collected and paid to the government, sales tax takes a large portion of the meagre incomes of the poor and a very small slice from the rich – widening the existing divide between them. The exemptions under the Income Tax Ordinance, 2001, especially for the powerful segments, causes a huge loss to the national exchequer – tax-free perks and benefits of public offices and high-ranking officials and public officeholders are funded by taxpayers’ money. The Finance Supplementary (Amendment) Act, 2018, recently passed by Parliament, withdrew tax free perks of Governors and Ministers but did not touch the same available to mighty generals, judges and civil bureaucrats. The state must tax all perks and utilize a collection to provide free facilities related to education, health, housing and transport to the public at large. Billions forgone as tax exemptions and concessions, could have significantly reduced Pakistan’s debt and fiscal deficit – the twin maladies it has been suffering from since long. Since 1991, income taxation in Pakistan has largely been converted into indirect taxation to benefit the rich – this was done by Nawaz Sharif and thereafter all regimes that retained it in the Income Tax Ordinance, 2001. The presumptive tax, in reality, is an indirect tax. For example, a contractor pays a fixed rate of income tax on gross value of contract – the burden falls of the contractee who withholds the income tax and deposits with Federal Board of Revenue (FBR). On the same amount, sales tax is paid to province where activity takes place. Thus, the contractee ends up paying a 20-25 percent tax on gross value! The powerful bureaucracy and political elite received Rs 600 billion in the fiscal year 2017-18, as perks and perquisites alone. Not only this, these powerful segments did not pay a single penny; as tax on benefits were received free or at concessional rates, in violation of section 13(11) of the Income Tax Ordinance, 2001. Besides tax-free benefits to the ruling elites, many tax amnesties/concessions/waivers have been extended to the rich businessmen. The government of Pakistan Muslim League-Nawaz, on assumption of power for the third time in June 2013, instead of taking steps against tax evaders and wealth plunderers, gave them four amnesties in five years and many other concessions/waivers. Ishaq Dar, now a fugitive, proudly announced in September 2013 that “all demands of traders relating to tax matters have been accepted”. These demands were related to condoning of tax evasions. Then Prime Minister (later disqualified and now facing cases in Accountability Court) personally announced tax amnesties for the non-filers – those who deliberately did not file tax returns. An unprecedented amnesty was given requiring them just to pay Rs 20,000 for a tax year and “no questions will be asked and no audit will be conducted”. This generous amnesty (expired on April 30, 2014) received an extremely cold response – only 3395 persons availed paying a paltry sum of Rs 87.7 million! Thereafter, the Nawaz-Dar duo gave two more tax amnesties to criminals for whitening their untaxed assets by just paying 3 percent of the value of assets! Then came the fifth one from Shahid Khaqan Abbasi, that also failed as meagre amounts were received on undisclosed assets which were stashed abroad as well as concealed inside the country. The state must tax all perks and utilise a collection to provide free facilities related to education, health, housing and transport to the public at large The position under the customs is equally appalling where approximately 2,000 tariff lines (representing 50 percent of the SROs) are liable for import duties of less than 5.1 percent, with almost 900 of them zero-rated! This is how tax laws have become a mockery of the rule of law in Pakistan. The Chairman of FBR admitted in 2014, that “the government is facing a massive revenue shortfall as two third imports are duty free. It is a matter of grave concern for the FBR that the dutiable imports have dwindled during the current fiscal year.” During a hearing before the Senate Standing Committee on Finance on May 13, 2014, the same Chairman revealed that “cost of tax exemptions granted over the years to the affluent was Rs. 480 billion per annum”. He was asked to explain “why FBR keeps on issuing SROs due to which customs duty, excise, sales tax and even income tax at source is not being collected and who are the beneficiaries?”. He replied: “all of these exemptions cannot be withdrawn, as some are socially sensitive while others are protected under the Constitution”. He defended exemptions of Rs. 320 billion that included income tax waiver given to independent power projects (IPPs) which he claimed was “protected through agreements and could not be withdrawn”. The Chairman of FBR, who later got rewarded by the rich to become the Governor of State Bank of Pakistan, was untruthful on all the points. First of all, no exemption could be granted through any SRO as held by the Supreme Court in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (S.C. Pak). In regards to the exemption granted to IPPs, it can also be withdrawn as held by the Lahore High Court in AES Pak Gen (Pvt) Company Lahore v Income Tax Tribunal Lahore (2006) 93 TAX 159 (HC Lah) and endorsed by the Supreme Court in Uch Power (Pvt) Ltd and others v Income Tax Appellate Tribunal and others 2010 SCMR 1236. The tax exemptions/concessions/waivers in Pakistan are for the rich and mighty and not for the less-privileged to be ‘socially sensitive’ as claimed by the Chairman of FBR in 2014, which is in practice till today. Till 1977, Pakistan had progressive rates of income taxes, capital transfer taxes, and wealth tax for re-distributive justice. Since then, there has been a continuous shift from equitable taxes to inequitable ones by granting extraordinary concessions and exemptions to the mighty segments of society. The writer, Advocate Supreme Court, is Adjunct Faculty at LUMS. Email:ikram@huzaimaikram.com; Twitter: @drikramulhaq Published in Daily Times, October 28th 2018.