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January 22, 2017

Laxity in tax compliance


January 22, 2017

Since political parties generally flout laws and rules, their claims to protect and promote democratic values sound clichéd to all. This year, only eight political parties submitted their annual accounts by the stipulated deadline – which expired on August 29, 2016.

Undoubtedly, there are no disclosures of financiers, donors and other people who contribute towards the huge expenses of political parties. This factor alone confirms that transparency is non-existent in our polity. Political parties also do not file tax returns which they should under the Income Tax Ordinance, 2001. The inaction of the Federal Board of Revenue (FBR) to compel the political parties to file tax returns along with audit accounts is simply deplorable. The same is the case with the Election Commission of Pakistan (ECP) which grants the elected members relaxations to file their annual declarations beyond the deadline given under the law.

Article 17(3) of the constitution requires that “every political party shall account for the source of its funds in accordance with the law”. The relevant law, Section 6(1) of Political Parties Order, 2002, states that a member of a political party will be required to pay a membership fee as provided in the party’s constitution and may, in addition, make voluntary contributions towards the party’s funds. Section 6(2) states that the contribution made by members or supporters of any party will be duly recorded by the political parties. Section 6(3) states that any contribution made, directly or indirectly, by any foreign government, multinational or domestically-incorporated public or private company, firm, trade or professional association will be prohibited and the parties may accept contributions and donations only from individuals. Section 6(4) states that any contribution or donation which is prohibited under this order shall be confiscated in favour of the state.

For the purpose of Section 6, a contribution or donation includes a contribution or donation made in cash, kind, stocks, hospitality, accommodation, transport, fuel and provision of other such facilities.

A majority of registered political parties have failed to observe Section 6 of the Political Parties Order, 2002 when read in conjunction with Rule 4 of the Political Parties Rules, 2002. As per Rule 4, every political party is expected to maintain its accounts in the manner stipulated in Form-I. It must indicate its income and expenditure, sources of funds and assets and liabilities.

Within 60 days from the close of each financial year (July-June), it must submit to the ECP a consolidated statement of accounts of the party. This statement must be audited by a chartered accountant, accompanied by a certificate, duly signed by the party’s leader. This shows that no funds from any source prohibited under the order have been received by the party and that the statement contains an accurate account of the financial position of the party. 

Under the Political Parties Rules, 2002, all financial transactions within a party shall be entered in the statement of accounts. These obviously include money received in any form and all expenditures incurred. The purpose is to guarantee financial transparency and enable voters, political workers, the media and civil society to know about the financial matters of political parties.

On January 16, 2017, a bench of the ECP, headed by the chief election commissioner, directed the lawyer of the PTI to present the party’s records. It has been reported in the press that the PTI allegedly accused the ECP of adopting a “discriminatory attitude”. The party subsequently tendered an apology to the ECP for making this statement. This was in relation to a petition, filed by ex-information secretary of the PTI, for the alleged collection of foreign funds, etc.

According to a report, the bench took a strong exception to the PTI maligning the ECP. The matter was later adjourned for January 24, 2017 with the directions that,the relevant record must be produced by the PTI on the next date. If there is nothing wrong with the PTI’s accounts, which has been submitted earlier to the ECP, it should not hesitate to present them and resolve the issue as early as possible. They are demanding the same from the prime minister in the Panama case which is being heard by the Supreme Court on a daily basis.

According to a report, Daniyal Aziz of the PML-N has expressed his displeasure over the adjournments given to the PTI. He said: “Why is the case being delayed at the ECP without a formal stay [order] granted by the high court”. PTI Finance Secretary Sardar Azhar Tariq refuted the allegations made by Daniyal and clarified that the case was pending before the ECP as the matter was sub judice before the Islamabad High Court.

It is also a matter of record that political parties in Pakistan do not file tax returns, violating Section 100C of the Income Tax Ordinance, 2001. Had the PTI done it, independent verification by  theECP could have been possible for alleged irregularities. The FBR has never bothered to issue notices to the PTI and other political parties to submit tax returns and the details of accounts.

In India, there is a mandatory provision of law – Section 13A of the Income Tax Act, 1961 – which requires political parties to either file returns or lose exemption from taxation. The chief election commissioner of India invariably asks Indian Central Board of Direct Taxes (CBDT) to scrutinise accounts submitted by political parties.

In Pakistan, neither the ECP nor NAB/FBR has bothered to consider this matter. On the contrary, the Protection of Economic Reforms Act, 1992 gives a free hand to tax evaders and money launderers to get billions of rupees whitened. All public officeholders or their dependents who have taken advantage of this law to avoid taxes should have been disqualified for the open admission of cheating the state. But not a single case has been filed and the ECP, FBR and NAB have never taken cognisance of the matter even in the wake of the Panama Papers.

It is time to make the filing of tax returns mandatory for all registered political parties. They should be scrutinised and made public in terms of Article 19A of the constitution, extending the right to citizens to question their veracity.

Contributions and donations received by parties should qualify for tax credits in the hands of donors. This will incentivise the masses to participate in the political process as active actors. Political parties are treated as non-profit organisations all over the world, working for the public good. This idea has yet to take root in Pakistan.

The writer is an advocate of the Supreme Court and adjunct faculty at LUMS.

Email: [email protected]

Twitter: @drikramulhaq

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