Tax Collection In Pakistan Is Unconstitutional And Coercive

Tax Collection In Pakistan Is Unconstitutional And Coercive

However good a Constitution may be, if those who are implementing it are not good, it will prove to be bad. However bad a Constitution may be, if those implementing it are good, it will prove to be goodB.R. Ambedkar


The Constitution of the Islamic Republic of Pakistan, in explaining the rule of law in Article 4, reproduced below, clearly states that every citizen shall be treated in accordance with law.

“4. (1) To enjoy the protection of law and to be treated in accordance with law is the inalienable right of every citizen. Wherever he may be, and of every other person for the time being within Pakistan.

(2) In particular—

(a) no action detrimental to the life, liberty, body, reputation or property of any person shall be taken except in accordance with law;

(b) no person shall be prevented from or be hindered in doing that which is not prohibited by law; and

(c) no person shall be compelled to do that which the law does not require him to do.”

There is no denying that citizens of this country cannot be coerced into paying to the exchequer that which they are not supposed to under the law and perform a function which they are not legally obliged to. This implies that where for example, a fine under traffic laws is Rs. 500, the official imposing it cannot demand the delinquent to pay Rs. 1,000. On the same lines, an innocent person cannot be arrested for a crime committed by, say, his son or brother. Not only would this be inhuman but the persons involved would have engaged in an unconstitutional activity.

For the last couple of decades, the Ministry of Finance has been blatantly violating the Constitution with the Parliament acting as a silent spectator, the members sitting there, totally oblivious to their voters’ hardships and the judiciary that claims to safeguard the Constitution, least bothered about this continuous breach. It all boils down to absolute disregard of the principles enshrined in Pakistan’s supreme law which the legislators are bound to follow when making enactments. Unfortunately, one of the prime tax laws of the country, the Income Tax Ordinance, 2001 (the “Ordinance”) imposed on the people by a military dictator that has been subjected to innumerable amendments since its inception, has never been taken by the legislators with the seriousness it deserves. Each successive government has left it to the whims of the Federal Board of Revenue (FBR) to twist, turn, smear, form or distort its provisions annually and sometimes, whenever desired. All that the Parliament does is render its endorsement without as much as debating the changes. Consequently, the principle “no tax without representation” has become nothing but a folly.

The FBR or the executive arm of the government, overwhelmed by unrealistic annual revenue targets, their sheer inability to widen the tax net and on account of their unwilling-to-work staff members, resort to introducing amendments in the law intended to recover more and more revenue with the least possible efforts. It hardly matters that steps taken for this purpose may actually defy all norms of equity, sanity and the Constitution of course. As long as they are meant to collect revenue and overturn court rulings, they are good enough. Out of many incomprehensible amendments over the last twenty years, perhaps the most illogical ones are related to withholding tax provisions, particularly in relation to filers and non-filers of tax returns.

To understand this anomaly, an example from real life would be more helpful. Zahid is a laborer who earns a daily wage and manages to bring home an average of Rs. 1,200 in a day if he is able to find a job which may run for as long 20 days in a month if he’s lucky. His wife is employed as a member of domestic staff at a salary of 8,000 a month. They get by, but Zahid’s mother lives with them in a one room quarter, the rent for which is Rs. 1,200 per month, sharing kitchen and bathroom facilities with four other tenants. While the couple is away, the mother cleans the room and prepares food. In her spare time, she does some stitching to earn extra bucks which on an average is not more than monthly Rs. 3,000. To stay in touch, they all own basic mobile phones, the SIMs of which are in Zahid’s name and use pre-paid cards. At the time of marriage, Zahid’s father-in-law, instead of giving jahez (trousseau) opened a profit/loss bank account in the name of his daughter and deposited Rs. 500,000. Independently, each member must annually earn above the threshold - Rs. 600,000 as of today - to become a taxpayer and a filer as per section 114(1)(ab) of the Income Tax Ordinance, 2001 but here their combined earning is roughly Rs. 420,000.

In the light of this example, let us examine the legal provisions of tax law that compel this family to pay taxes even where not warranted. As far as Mrs. Zahid’s bank account is concerned, whatever little profit she gets would be deducted by 30% income tax which happens to be full and final discharge of liability. This is so because she is not a return filer, otherwise her deduction would have been only 15%, as per Rule 1 of the Tenth Schedule. On pre-paid cards for the mobile phones, taxes are deducted in which the share of income tax is 15% which is, however, adjustable against annual income tax liability. Since Zahid is not required to file return of income as stated above, he would never be able to claim a refund and that too, if he had the knowledge. In simple terms, taxes are being extorted illegally from persons who are neither obliged to pay them nor file their return of income. To save themselves from these unjust deductions of tax, Mr. and Mrs. Zahid would have to invoke rule 2 of the Tenth Schedule of the Ordinance that reads as under:

“2. Persons not required to file return or statement – (1) Where the withholding agent or the person from whom tax is required to be collected or deducted is satisfied that a person not appearing in the active taxpayers’ list was not required to file a return of income under section 114, 4as the case may be, he shall before collecting or deducting tax under this Ordinance, furnish to the Commissioner a notice in writing electronically setting out –

(a)   the name, CNIC or NTN and address of the person not appearing in the active taxpayers’ list;

(b)   the nature and amount of the transaction on which tax is required to be collected or deducted; and

(c)   reason on the basis of which it is considered that the person was not required to file return or statement, as the case may be.

(2) The Commissioner, on receipt of a notice under sub-rule (1), shall within thirty days pass an order accepting the contention or making the order under sub-rule (3).

(3) Where the withholding agent or the person from whom tax is required to be collected or deducted has notified the Commissioner under sub-rule (1) and the Commissioner has reasonable grounds to believe that the person not appearing in the active taxpayers’ list was required to file return or statement, as the case may be, the Commissioner may, by an order in writing, direct the withholding agent to deduct or collect tax under rule 1:

Provided that in case the Commissioner does not pass any order within thirty days of receipt of notice under sub-rule (1), the Commissioner shall be deemed to have accepted the contention under sub-rule (2) and approval shall be treated to have been granted.”

One wonders how this complicated rule can be complied with and why would a withholding tax agent bother to waste his time in submitting the required details for the benefit of a non-filer. What kind of expropriations are the poor people of this country being subjected to? On the one hand, the Second Schedule to the Ordinance contains 118 pages of exemptions and low rates of taxes granted to the rich and powerful while on the other, those who can hardly afford to eke out a decent human living are expected to contribute to the treasury.

When will these shameful laws be replaced with equitable ones?

The writer is a lawyer and author, and an Adjunct Faculty at the Lahore University of Management Sciences (LUMS), member Advisory Board and Senior Visiting Fellow of Pakistan Institute of Development Economics (PIDE)