No taxation without representation is a cardinal principle of democracy — Article 77 of our Constitution also reiterates that no tax shall be levied for the purposes of the Federation except by or under the authority of the Act of Parliament. The Supreme Court of Pakistan in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (SC 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 authorised by the Federal Government i.e. the Cabinet, and not the Prime Minister on his own”.
Unfortunately, the Prime Minister and the Finance Minister have been violating the command of supreme law of the land and dictum of Supreme Court with impunity by levying and varying tax rates through Statutory Regulatory Orders (SROs). The latest example: SRO 292(I)/2017 dated April 30, 2017 through which against standard rate of 17 percent under Sales Tax Act, 1990, high speed diesel is subjected to rate of 33.5 percent.
It is shocking that even after Supreme Court’s judgement in Messers Mustafa Impex, the Government has still been imposing new taxes or revising the rate of existing taxes through SROs in violation of Articles 77 and 189 of the Constitution
The landmark judgement by the Supreme Court [Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (SC Pak.)] vindicated our point of view, frequently highlighted in these columns, that power of levying taxes (which includes exemption, waiver and change in tax rates etc) under Article 77 of the Constitution is the sole prerogative of the Parliament and it cannot be delegated to any executive authority.
Irritated by the judgement of Supreme Court, the tax babus sitting in Federal Board of Revenue (FBR), who always hoodwink the Finance Minister Ishaq Dar or he himself is party to such unconstitutional measures, have now proposed amendments through Finance Bill 2017 in Customs Act, 1969 [section 221A], Sales Tax Act, 1990 [section 74A], Income Tax Ordinance, 2001 [section 241] and Federal Excise Act, 2005 [section 43A] to nullify the judgement of Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (SC Pak).
The text of all these amendments is almost the same: “All notifications and orders issued and notified in exercise of the powers conferred upon the Federal Government, before the commencement of Finance Act, 2017, shall be deemed to have been validly issued and notified in exercise of those powers, notwithstanding anything contained in any judgment of the High Court or Supreme Court”. One wonders what kind of wizards FBR and Ministry of Law have. Can Article 77 as enunciated by Supreme Court be bypassed through such amendments in subordinate laws? All laws are supposed to conform to the Constitutional principles.
FBR stalwarts have been insisting that words “by or under the authority of Act”, as used in Article 77 of the Constitution, authorise “taxation by delegation” as well which they considered justified to do so through Statutory Regulatory Orders (SROs). However, before the Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (SC Pak), Additional Attorney General submitted that “the levy and exemption of tax is the function of Parliament under Article 77 of the Constitution and … power of exemption if given to the executive per se, would amount to the negation of the doctrine of parliamentary supremacy and the doctrine of separation of powers”. This submission was against the view of FBR and was confirmed by the Apex Court. To nullify this binding judgement under Article 189 of the Constitution, the Finance Minister committed contempt of court by proposing these amendments in tax laws. The Law Minister and Attorney General of Pakistan, both seasoned lawyers, must advise the Finance Minister to withdraw them forthwith as the only remedy in such circumstances is a constitutional amendment and not mere insertion of validation clauses.
It is shocking that after judgement of Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (SC Pak) and Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others [(2013) 108 TAX 1 (SC Pak)], the Government has been resorting to imposing new taxes or varying the rate of taxes through SROs violating not only Article 77 but also openly defying Article 189 of the Constitution. They were lucky that this aspect was neither considered by the Apex Court nor did the Counsel representing the parties bothered to highlight it for seeking contempt proceedings against the contemnors.
Taxation by SROs is a flagrant violation of the supreme law of the land. In the Finance Bill 2017, this unlawful power is proposed to be delegated to FBR that would enable it to vary rates with the approval of the Minister! Can such an amendment stand the test of principle laid down by the Supreme Court in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others [(2013) 108 TAX 1 (SC Pak)] as under:
“It is well settled proposition that levy of tax for the purpose of Federation is not permissible except by or under the authority of Act of Majlis-e-Shoora (Parliament). Reference in this behalf may be made to the case of Cyanamid Pakistan Ltd. V. Collector of Customs (PLD 2005 SC 495), wherein it has also been held that such legislative powers cannot be delegated to the Executive Authorities. Also see Government of Pakistan v. Muhammad Ashraf (PLD 1993 SC 176) and All Pakistan Textile Mills Associations v. Province of Sindh (2004 YLR 192).” (Page 18, Para 20)
It is shocking that Nawaz Sharif as Badshah Salamat (king) and his Vazir-e-Khazana (Finance Minister) want to abuse supreme law of the land by levying taxes or varying the tax rates through SROs in utter violation of Constitution as explained by Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (SC Pak) and Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (S.C. Pak). Will Parliament take note of it while voting for Finance Bill 2017?
The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)