The federal government has imposed fixed sales tax per litre on all petroleum products with effect from February 1, 2016, violating the statutory requirement of charging sales tax on percentage basis under section 3 of the Sales Tax Act, 1990.
The fixed sales tax levied through a Statutory Regulatory Order even otherwise offends Article 77 of the constitution of Pakistan. According to SRO 57(I)/2016 dated January 30, 2016, the sales tax on motor spirit, excluding HOBC, is fixed at Rs14.48 per litre, on HOBC Rs18.57 per litre, on high speed diesel at Rs29.57 per litre, on light diesel Rs9.63 per litre and on kerosene at Rs10.40 per litre. SRO 57(I)/2016 is issued under section 3(2)(b) of the Sales Tax Act, 1990 which does not mandate fixed sales tax.
By imposing a fixed sales tax on petroleum products, the government has denied the citizens the actual benefit of the international reduction of POL prices. The aim behind this unlawful taxation is to extort maximum tax from the consumers. The reduction of prices by just Rs5 of all petroleum products is totally unjustified. Collection of a fixed amount of Rs29.57 on high speed diesel oil will fetch higher taxes as this is the largest selling product.
The exorbitant taxation of petroleum products through SRO 57(I)/2016, without the approval of parliament and in utter disregard of the judgement of 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), is highly lamentable. In this judgement, the apex court held:
“It is [a] well settled proposition that levy of tax for the purpose of the 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]
Section 3(2)(b) of the Sales Tax Act, 1990 says: “the federal government may, subject to such conditions and restrictions it may impose... declare that in respect of any taxable goods, the tax shall be charged, collected and paid in such manner and at such higher or lower rate or rates as may be specified in the notification.”
Section 3(2)(b) of the Sales Tax Act, 1990 only authorises the federal government to vary tax rates in case of taxable goods and not to impose fixed amount of sales tax as has been done through SRO 57(I)/2016. Imposition of fixed sales tax is thus void ab initio even under delegated powers, notwithstanding the fact that such powers violate Article 77 of the constitution.
SRO 57(I)/2016 also exposed the tall claims made by the finance minister in a press conference on May 11, 2015, that “through [the] Finance (Amendment) Ordinance, 2015, power of [the] FBR to issue SROs has been withdrawn”. He said that such powers were transferred to the Economic Co-ordination Committee of Cabinet in “exceptional circumstances”. If this was the case, why had approval not been sought from the EEC? In fact, section 3(2)(b) of the Sales Tax Act, 1990 does not require approval of the EEC.
The levy of fixed sales tax under section 3(2)(b) of the Sales Tax Act, 1990, as discussed above, is patently unlawful. In the wake of the Supreme Court pronouncement in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (SC Pak), imposition of taxes, or varying tax rates or granting exemptions and concessions through SROs, amount to contempt of court. The perpetual violation is evident on the website of the Federal Board of Revenue (FBR) but no action has been taken by the Supreme Court so far. The National Assembly or Senate have also not debated this crucial issue from the constitutional perspective.
On the one hand, the FBR has been extending numerous reductions in duties and tax concessions to cartels through SROs. On the other, the government imposes exorbitant taxes on petroleum products – in the process hurting the economy and low-income groups. By imposing higher sales tax and other indirect levies, the government is not passing on the benefit of the global reduction in petroleum prices. This retards economic growth and makes our exports uncompetitive in the international markets.
Pakistan is a unique country where the executive authority can conveniently undo tax laws passed by parliament through executive orders (SROs); this is violation of Articles 77 & 162 of the constitution. Article 162 debars even the National Assembly to grant exemptions without the prior approval of the president, but interestingly, this power has been delegated unconstitutionally to the EEC first through the Finance (Amendment) Ordinance, 2015 and then by passing the Finance Act, 2015, in blatant disregard of Article 77 of the constitution. In these circumstances, there is little hope that parliament will undo this blatant violation of the supreme law of the land.
The only hope to enforce Article 77 read with Article 162 of the constitution is the implementation of the Supreme Court’s judgement in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (SC Pak) by filing contempt application. This judgement is binding on all state organs under Article 189 of the constitution. Usurping the exclusive power of parliament to levy taxes by SROs, even after approval by the EEC, is clear contravention of the constitution. Unfortunately, the august apex court has as yet not taken note of it.
It is high time the Supreme Court Bar Association moved a contempt application for perpetual violation by the government of dictum 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) in public interest.
The writer is advocate Supreme Court, and adjunct faculty at LUMS.
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