According to a Press report, the fifth meeting of the 9th National Finance Commission (NFC) award held on March 29, 2019 in Lahore concluded without a consensus on the issues which were also discussed during the last in Islamabad but were left unresolved. It says: Given these unresolved issues among the federating units, there are chances that the upcoming budget would be presented under the current NFC formula, the legal mandate of which is valid till June 2020. Absence of Sindh Chief Minister Murad Ali Shah, who holds additional portfolio of provincial finance minister, also raised many questions about inter-provincial harmony and coordination with Islamabad. In the previous meeting, Sindh Chief Minister forcefully raised the issue of lesser fund transfer from Islamabad to all provinces and claimed that in the first six months of the current fiscal year, Sindh was paid Rs. 60 billion less than the corresponding period.
Chairing the meeting, Federal Finance Minister, Asad Umar, laid stress on pushing the 9th NFC award talks forward with consensus among participants. However, crucial issues like strengthening tax base with improvements in the Federal Board of Revenue (FBR), provincial autonomy in taking revenue generating decisions and financial arrangements for the erstwhile Federally Administered Tribal Areas (FATA) after their merger with Khyber Pakhtunkhwa remain unsolved. Asad Umar told media after the meeting that the “efforts are under way to complete the process of 9th NFC Award by December 31, 2019, besides improving the federal and provincial governments’ coordination regarding collection of taxes”.
Some time back, the renowned economist, Dr. Kaiser Bengali, in an interview with a newspaper, said that “the giving of tax breaks by the federal government in the middle of the year has started affecting the revenue share of provinces, resulting in a significant reduction in transfers during the first six months of the current fiscal year”. According to Dr. Bengali, whenever the FBR comes under pressure to give a boost to the revenue collection, it starts resorting to “the old tactic of burdening the lower and middle class taxpayers”. The same situation prevails under the present coalition government of Pakistan Tehreek-i-Insaf (PTI). Before coming to the power, it vowed to make the tax system just and fair, but now it is proving even worse than two preceding governments of Pakistan People Party [2008-13] and Muslim League (Nawaz) [2013-18] in shifting the burden of taxes on the less-privileged segments of society on the dictates of powerful segments and the International Monetary Fund (IMF). The PTI Government is hopeful to get a new bailout package from the IMF by the mid of May, 2019.
Dr. Bengali and many others experts’ keep on reiterating that lower revenue collection by FBR is bound to jeopardize the federal and provincial budgetary frameworks. The issue is not alone of FBR’s inability to collect projected revenues, but also numerous tax concessions and exemption available to the rich and mighty under the federal and provincial tax laws that no government intends to withdraw. Provincial budgets run into deficits not only due to reduced share from the Divisible Pool but also because of their inaction to tax the rich people, especially the absentee landowners and wealthy property owners. The right to levy progressive taxes like wealth tax, gift tax, capital gain tax on immovable property and inheritance tax after the Constitution (Eighteenth Amendment) Act, 2010 [18th Amendment] is now with the provinces. This became effective on April 19, 2010 but provinces after getting these powers did not bother to levy any progressive tax and also failed to collect agricultural income tax from the rich absentee landlords, many of them are in the provincial assemblies and hold important portfolios in cabinets of all the four provinces.
Dr. Bengali rightly demanded in the interview “all SROs affecting the revenue share of provinces should be approved by the Council of Common Interests (CCI)—the Constitutional body headed by the prime minister with all chief ministers as its members”. The demand of Dr. Bengali is judicious. Total loss of revenue through SROs issued during the last ten years alone was estimated about Rs. 1200 billion—unprecedented concessions to the rich made the State poorer and the masses indebted enormously.
The Executive (tax officials) as per Constitution of Pakistan has powers to enforce tax laws but they have been varying or modifying them to negate the principles enshrined in Articles 77 and 162 of the Constitution of Pakistan. The Statutory Regulatory Orders (SROs) violate the constitutional command that all the taxes should be enacted by parliaments and their proper enforcement is to be ensured by tax administration. The SROs are the worst example of naked and blatant violation of supreme law of the land. By surrendering their sovereign right of taxation to Executive, the elected members in Pakistan gave them a free hand to fleece the poor and raise taxes primarily for the luxuries of elites—the powerful military-judicial-civil complex and their cronies in politics.
A very important constitutional provision (Article 162) has escaped everybody’s attention. Article 162 of the Constitution debars even the National Assembly to grant tax exemptions or concessions without prior approval of the President. The power to issue SROs delegated to the federal government by the Parliament is blatant violation of supreme law of the land. How can Parliament delegate a power which cannot be exercised by itself without the prior sanction of the President?
The principle of “no taxation without representation”, embodied in Article 77 read with Article 162 of the Constitution, is perpetually and flagrantly violated—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) though required to act within the four corners of the Constitution. Authority to issue 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 issue SROs is in utter violation of Article 162 as parliament itself is not authorised 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. 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 moto action is 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
Enforcement of Rule of Law determines the failure or success of a society. In the context of tax laws, it means that taxes are imposed through parliamentary process, rather than through administrative discretions (SROs). Article 77 of Constitution says that no tax shall be levied for the purposes of the Federation except by or under the authority of the Act of Parliament. Thus 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 FBR have been playing havoc with tax laws by issuing infamous SROs and administrative instructions—granting exemptions or modifying the taxes imposed by the parliament or even levying taxes under the garb of rule-making powers.
Dr. Bengali rightly highlighted the malady but has not suggested the right remedy i.e. withdrawal of all provisions delegating powers to the executive to issue SROs in view of Article 162 of the Constitution, taking these to CCI is not the answer. Tax administrators should be given powers to enforce tax laws and not to vary or modify them to negate the principles enshrined in Article 77 and 162 of the Constitution. Tax laws should be framed and enacted through a constitutional process and their proper enforcement is to be ensured by tax administration.
All segments of the society should adhere to the rule that nobody is above law. Through these SROs, the government bypassed the Parliament and committed open violation of the latest dictum of Supreme Court in the case of Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others 108 TAX 1 S.C. Pak that says:
“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 1993SC 176) and All Pakistan Textile Mills Associations v. Province of Sindh (2004 YLR 192).” [Page 18 , Para 20]