SHC declares imposition of income support levy by PML-N govt in 2013 as unconstitutional

The Sindh High Court (SHC) on Thursday held that the imposition of the Income Support Levy (ISL) Act by the former Pakistan Muslim League-Nawaz government in the 2013 budget did not possess the characteristics of a tax as it was not a common burden for raising revenue to be utilised for general public, thereby declaring the Act as ultra vires to the Constitution.

The judgment came on as many as 578 constitutional petitions pending since 2013 before the SHC in which the petitioners had challenged the vires of the ISL Act, 2013. The petitioners, who were taxpayers having more than net one million moveable assets, contended that the imposition of the income support levy at the rate of 0.5 per cent on the value of the net moveable assets through the Act was unconstitutional as it did not possess the characteristic of a tax, and also for being discriminatory as it created unreasonable classification within the same class.

A second category of the petitions had challenged the notices and assessment orders passed in terms of the Section 5 of the ISL Act 2013 despite its repeal by the government in 2014. A counsel for the petitioners submitted that the impugned ISL Act, under which a tax had been levied at the rate of 0.5 per cent on the net value of moveable assets was ultra vires to the constitution, illegal and introduced without lawful authority.

They submitted that the provisions of ISL Act were not in conformity with the provisions of the Article 73 read with Article 78 of the Constitution and thus, it could not be introduced through a money bill. They submitted that the impugned law was also discriminatory in nature, and it amounted to double taxation as the tax was already imposed on the accumulated wealth of an individual, which represented the income already subjected to tax or exemption, as the case may be, under the Income Tax Ordinance, 2001.

They submitted that under the impugned enactment, only such individuals who were already in the tax net i.e. existing taxpayers, had been subjected to the charge of income support levy, whereas, similarly placed individuals, who did not pay any income tax i.e. non-filers of income tax returns, were excluded from the purview of the subject levy, and this fact alone, made the impugned levy as discriminatory.

The petitioners informed the high court that a large number of persons who had acquired huge assets and accumulated wealth had not been brought into the net of income tax and they were conveniently excluded from the charge and imposition of the income support levy; whereas, only such individuals who were already making payments of the income tax had been subjected to further tax in respect of their accumulated wealth and that additional tax was imposed after the payment of income tax on such income from which such wealth had been accumulated.

An additional attorney general submitted that the ISL Act 2013 was promulgated through the Finance Act, 2013 to provide for financial resources for running an income support fund for the economically distressed persons and their families and by virtue of the sections 4 and 9 of the Act, a levy at the rate of 0.5 per cent was imposed on individuals’ net moveable wealth exceeding Rs1 million. However, he submitted that the law was expressly repealed by the section 10 of the Finance Act in 2014. He submitted that the accrual of such obligation or liability simultaneously created a vested right in favour of the state to claim such a levy, whose vested right was also protected by the Section 6 of the General Clauses Act, 1897.

A division bench of the SHC headed by Justice Aqeel Ahmed Abbasi after perusal of the record and budget speech of then finance minister while introducing the ISL Act through the Finance Act 2013 observed that the government at that time had lost sight of constitutional provisions relating to the imposition of taxes or levies as per the fourth schedule of the Constitution and could not justify how the subject levy had the characteristics of a tax.

The high court observed that the subject levy did not possess the characteristics of a tax as it was not a common burden for raising revenue to be utilised for the general public purpose. On the contrary, the SHC observed, it was a levy in the nature of fund to be charged and utilised for specific purpose i.e. to provide financial resources for raising income support fund for the economically distressed persons and their families.

The bench observed that it appeared that while introducing the enactment through the Finance Act, 2013, instead of imposing tax as common burden for the collection of revenue to be utilised for the general purpose, a levy in the nature of fund to be utilised for a specific purpose i.e. social welfare of poor persons, had been introduced without following the constitutional requirements as per the Article 70 read with the Article 78 of the Constitution.

The high court held that the ISL Act, 2013 could not be introduced through the Finance Act, 2013, in terms of the Article 73 of the Constitution and the same was declared to be ultra vires to the Constitution.

The SHC observed that the levy imposed was also declared to be ultra vires to the Constitution for being discriminatory as it created unreasonable classification within the same class of persons, which was the class having the net moveable wealth exceeding Rs1 million. The court observed that its incidence and charge of levy fell unequally upon the existing taxpayers only, who filed or were required to file their wealth statement under the Section 116 along with their income tax return under the Section 115 of the Income Tax Ordinance.

However, the SHC held that the non-existing taxpayers who were not required under the law to file their wealth statement or who did not file their wealth statement along with the income tax return, in spite of having much higher net moveable wealth exceeding Rs1 million, had been excluded from the incidence and the charge of such a levy, which was in clear violation of the Article 25 of the Constitution. Allowing the petitions, the high court held that all the notices and the proceedings, including the assessment orders passed under the Section 5 of the ISL Act, 2013, and after the repeal of the Act were also declared to be without jurisdiction and lawful authority.