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In 2001, the duo of General Pervez Musharraf and Shaukat Aziz decided to promulgate a new income tax law on the dictates of International Monetary Fund (IMF). The move was opposed by many on the plea that the regime lacked legitimacy. It was stressed that enactment of income tax law through a Presidential Ordinance was violation of Article 77 of the Constitution that embodies the well-established principle: no taxation without representation.
Ignoring the protest and Constitution, General Musharraf promulgated Income Tax Ordinance, 2001, following the footsteps of General Ziaul Haq, who promulgated Income Tax Ordinance, 1979. Tragically, this badly-drafted law has been retained by three elected parliaments thereafter.
The elected (coalition) government of the Pakistan People’s Party during its five-year term (2003-2008) and the present one since assumption of power in June 2013, have not bothered to revisit the Income Tax Ordinance, 2001, though so directed by the Supreme Court in CIT v Ely Lilly & Others 2009 PTR 23 [Supreme Court] as under:
"Since the creation of Pakistan, we have not been able to frame any Income Tax Act duly debated in the Assembly. Both the Ordinances were promulgated during the Martial Law Regime otherwise the Constitution has prescribed a four-month life of an Ordinance in case the Ordinance is not be placed before the Assembly and it shall be enacted as an Act then the Ordinance will automatically cease to exist. This aspect also reveals that the Constitution has cast duty upon the legislative body to frame the laws within the parameters prescribed under the scheme of the Constitution"….The fact that the Ordinance in question was issued and various amendments were incorporated before and even after the enforcement of the Ordinance 2001 raises the controversy that the Ordinance in question was promulgated without meticulous debate on the subject due to which assessees and concerned departments were compelled to agitate the issues in different courts."
The Income Tax Ordinance, 2001 is such a badly drafted law that it has been amended over 2000 times during the last 10 years. It has generated enormous litigation and utter confusion -- for detailed comments see Law & Practice of Income Tax, Volume I, pp 1-14. Since the Parliament and the Federal Board of Revenue (FBR) failed to remove the inbuilt contradictions, revenue worth billions of rupees was lost when Supreme Court held in 2009 PTR 23 [Supreme Court]:
"It appears that the Ordinance was drafted in post haste and the draftsman omitted to incorporate this important provision. This observation is supported from the fact that the Ordinance was subjected to speedy, successive and large scale amendments, particularly at its very inception." It may be seen that section 238 provided that the Ordinance shall come into force on a date to be appointed by the Federal Government by notification in the official gazette. Accordingly, vide notification (SRO No. 381(I)/2002) dated 16.6.2002, the Ordinance came into force with effect from the first day of July 2002, but with more or less 1000 amendments inserted by the Finance Ordinance, 2002, as calculated by the learned counsel for the respondents…..Had the un-amended provision of subsection (1) of section 239 continued on the statute book, no difficulty would have arisen regarding the treatment of assessment orders passed in respect of the assessment year ending on 30th June 2003. In such eventuality, the assessments up to the said period would have been governed under the repealed Ordinance, while the assessments of the post-enforcement period of the Ordinance of 2001 would be governed under the latter Ordinance."
In 2009 PTR 23 [Para 53], the Supreme Court categorically held that "there is a need to review the language, content and scope of the power to amend and further amend an assessment, the power to revise an assessment and the power to rectify mistakes envisaged in these sections so as to make it in line with the legislative intent of consolidating the law relating to income tax so as to make it easily comprehensible to the convenience of the taxpayers." This judgement, passed on 22 June 2009 and binding under Article 189 of the Constitution, has still not been implemented. So far, the FBR has failed to enforce tax obligations because of conflicting and confusing provisions of the Income Tax Ordinance, 2001. It is high time that the government introduces a Bill in the Parliament for a new and simple income tax law.
The new law must tax all according to their ability (abolishing all existing presumptive and minimum tax regimes, concessions and exemptions), taxpayers should be given rights through Taxpayers’ Bill of Rights ensuring that taxes collected would be spent for public welfare and not for the luxuries of the ruling elites and that their cases shall be adjudicated expeditiously through an independent tax appellate system. Efforts are urgently needed to have an income tax law:
It is an inescapable conclusion that income tax law, as it exists, is a most undesirable piece of legislation. Direct tax system intends to achieve the twin aims of maximising revenue as well as utilising revenue for achieving socio-economic objectives --both of which remain unfulfilled because of our present tax system. In fact, the complex regime of incentives and disincentives built into the direct tax law cannot but lead, per se, to difficulties in enforcement and to the opening of opportunities for tax-dodgers/evaders.
At the operational levels, this has resulted in undue bureaucratisation, corruption and harassment of the citizens. Undoubtedly, the time has come to resolve these contradictions and to completely convert direct tax regime into simple tax law. The new law should aim at generation of resources besides achieving some limited but important economic objectives like promotion of savings, encouragement of new investments and conservation of energy.
In order to initiate a public debate, a draft of ‘Income Tax Act, 2014’ is available in Taxation of April 2014. All concerned -- members of Majlis-e-Shura, tax administrators, trade and professional bodies, taxpayers, tax professionals and public at large -- may debate it, suggest improvements and highlight shortcomings and deficiencies. The adoption of this draft after a meaningful public debate can pave the way for better income tax collection in the country.
