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January 1, 2015

Legal experts slam sales tax increase procedure


January 1, 2015

KARACHI: Legal experts appeared skeptical on Wednesday as to whether finance mangers followed the proper procedure in imposing an increase in sales tax on petroleum products.
They objected on the SRO issued by finance ministry, which increased sales tax by 29.5 percent on POL products, saying that it should only be act of parliament.
“There are clear instructions in the Constitution and Supreme Court orders regarding imposition of tax,” Dr. Ikram ul Haq, advocate Supreme Court and leading tax consultant said.
A day earlier, the revenue division of ministry of finance issued SRO 1152(I)/2014 to enhance the sales tax to 22 percent from 17 percent, effective January 01, 2015 in order to offset the decline in revenue collection due to the oil price shocks.
The revenue division issued the notification exercising powers vested in clause b sub-section 2 of Section 3 of Sales Tax Act, 1990, which allows the federal government to impose tax through a notification.
Dr. Haq, however, said the Supreme Court in Human Rights Case No 14392 of 2013 [2014 PTD 243], combining many others, disapproved undue hikes in utilities provided to people and in Iqbal Zafar Jhagra v Federation of Pakistan (2014) declared levying of taxes through executive orders unconstitutional.
The government, despite such cases, which are binding under the Constitution, has been resorting to infamous SROs for levy of taxes, he said and added: “Such move of the government may be challenged in court of law.”
The government increased the sales tax considering sharp fall in prices of petroleum products and a threat to revenue collection. The combined contribution of POL products on imports and local supplies is about 40 percent towards total sales tax.
Munawar H. Shaikh, President, Pakistan Tax Bar Association said the government should avoid taking such decision and should go to the parliament for appropriate approval.
He said the finance minister himself on several occasions

announced elimination of SRO culture.
Another senior tax lawyer, requesting anonymity, said the Supreme Court in its observation made in the order of 2013 that the parliament/ legislature alone and not the government/executive is empowered to levy tax.
The apex court in the case also observed: “As far as delegation of such powers to the Government/Executive is concerned, the same is for the purpose of implementation of such laws, which is to be done by framing rules, or issuing notifications or guidelines, depending upon case to case, as we have come across some of the cases noted hereinabove. But in no case, authority to levy tax for the Federation is to be delegated to the Government/Executive.”
The lawyer, however, said at present different sales tax rates are implemented, if considered Supreme Court judgment, all the rates should be withdrawn.
On the other hand, officials in Federal Board of Revenue (FBR), said soft oil prices have dented sales tax revenue. “In addition, the collection of advance income tax also started declining,” said a FBR official.
Legal experts admitted the current revenue crisis but said the government should present the revision in sales tax rate before the parliament, which is summoned on January 1, 2015. They also suggested that the FBR should explore other avenues such as broadening of tax base and bringing elites into tax net, who are already identified by the tax authorities.

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