Daily Times

Pakistan is a unique country where the government can conveniently undo or alter tax laws, passed by the Parliament, through executive actions—commonly known as statutory regulatory orders (SROs). This is in violation of Constitution of Pakistan as enunciated by Supreme Court in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (S.C. Pak). According to this judgement, the Legislature [Parliament] cannot delegate its sovereign power of taxation to Executive.  Even after this judgement, the Parliament in violation of Articles 77, 162 and 189 delegated the powers to Economic Coordination Committee [EEC] in 2015.

In the meantime, the government through SRO 500(I)/2006 dated July 30, 2016 again resorted to variation of sales tax rates on POL products. The federal government earlier imposed fixed sales tax per litre on various petroleum products in February 2016. The variation of rates through SROs, issued under section 3(2)(b) of the Sales Tax Act, 1990, are unconstitutional in the light of following dictums laid down in  Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (S.C. Pak):

“22. Mr. Salman Akram Raja, learned counsel for OGRA purported to canvass that taxing power of the Parliament can be delegated to the Government/Executive and the delegatee of such power may then decide at what rate tax is to be imposed or what exemption or reduction, if any, is to be granted….”

“23. We are not inclined to agree with the learned counsel…..”Viewed in this context what the Constitution committed to the Legislature as its primary obligation to be discharged by it with exercise of powers conferred on it, cannot be entrusted by the legislature to another organ of the State or to a body of its own creation. That would negate the very basic arrangement adopted by the Constitution and in its place create a mode of the discharge of legislative function, in a manner not envisaged therein or contrary to the instrument which constituted it.”

“24. It is also to be borne in mind that in a Parliamentary system of Government, the scheme of the Constitution is based upon the theory of separation of powers enunciated by the French political philosopher Montesquieu under which powers of the State are distributed among the three organs of the State, namely, Legislature, Executive and the Judiciary. Under Article 7 of the Constitution, 1973, two institutions named earlier find mention, whereas the Judiciary has not been included therein with a view to establishing a system of checks and balances. Similarly, John Locke, in his work Treatise on Civil Government has emphasized that “the legislative cannot transfer power of making laws to any other hands, for it being but a delegated power from the people, they who have it cannot pass it over to others….”

It is strange and shocking that Parliament through Finance Act, 2015, even after the above judgement, delegated powers to Executive for imposing sales tax on petroleum products through SROs. On many occasions, the government through SROs denied the citizens the actual benefit of reduction of POL prices internationally. The sinister aim behind unlawful and excessive taxation through SROs has been to extort maximum money from the consumers to show lower fiscal deficit. In January 2016 when petrol hit the lowest price of $25 per barrel in international market, our government decided to charge more than twofold per litre under taxes to deny its benefit to the citizens. It was done through executive order bypassing the Parliament.

The solution lies in fair oil pricing system through open and transparent markets, ensuring complete deregulation of prices with reasonable fixed sales tax for fiscal stabilisation. Our finance minister must study the successful models of countries where fiscal stabilization is achieved through deregulation and fixed tax regime. For his information, following are some case studies:

Fuel taxes in Germany are €0.4704 per litre for ultra-low sulphur Diesel and €0.6545 per litre for conventional unleaded petrol, plus Value Added Tax (19%) on the fuel itself and the Fuel Tax. That adds up to prices of €1.12 per litre for ultra-low sulphur Diesel and €1.27 per litre (approximately US$ 6.14 per US gallon) for unleaded petrol.

Indian Prime Minister Narendra Modi after taking the oath of office took bold steps to free the economy from the clutches of fuel subsidy by deregulating diesel and formalizing the price formula for natural gas. This insulated his government from politically-sensitive decisions in future. After a Cabinet meeting, Finance Minister Arun Jaitley announced that diesel price stood deregulated to allow it to move as per market conditions, just like petrol. The government no longer decides the selling price of diesel in the country and decision is taken by oil retailers such as Indian Oil Corp, BPCL and HPCL.

The UAE’s Ministry of Energy deregulated fuel prices from August 1, 2015.

The sale of fuels in the Netherlands is levied with an excise tax: petrol excise tax is EUR 0.766 per litre and diesel excise tax is EUR 0.482 per litre, while LPG excise tax is EUR 0.185 per litre.

The fuel tax in Sweden comprises a carbon tax and an energy tax. The total tax (including value added tax) is around 8.285 kr per liter petrol.

The research teams of Ministry of Finance and FBR (if they really have these!) must concentrate on professional studies available and then suggest a viable tax model for petroleum products in Pakistan that can achieve fiscal stabilisation without hurting the economic growth and the buying power of low-income groups.

Dr Ikramul Haq, Advocate Supreme Court and author of many books, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)