Home »Articles and Letters » Articles » Finance Act, 2018: Flagrant constitutional violations

  • News Desk
  • May 25th, 2018
  • Comments Off on Finance Act, 2018: Flagrant constitutional violations
The adoption of the Finance Bill 2018 on May 18, 2018 by National Assembly, committing flagrant violations of the supreme law of the land, once again confirms that the outgoing government of Pakistan Muslim League (Nawaz) [PML-N] has total disrespect for the rule of law and democratic norms. It also reflects the apathy of all the legislators, representing the various parties in the House, towards well-being of the less-privileged, freeing the country of debt-enslavement, ensuring rapid economic growth with equity and improving the overall living conditions of the citizens. The grant of unprecedented tax amnesties for foreign and domestic assets/incomes and disproportionate tax relief to the rich and mighty individuals are simply appalling. On the contrary, noting worthwhile is made part of Finance Act, 2018 that can make Pakistan a self-reliant economy, improve the plight of the common people-no measures for universal pensions, social security or income support announced. There are no tax breaks for companies for creating jobs for the unemployed youth and earmark funds for human development, especially for vocational training for those who could not attend schools or colleges.

The government of PML-N, ending its tenure on May 31, 2018, was adamant to pass the Finance Bill 2018 without any meaningful debate. In the original Finance Bill, a number of amendments were proposed at the last moment. These were successfully, though wickedly and unlawfully, got approved from indifferent legislators by crafty bureaucrats sitting in the Federal Board of Revenue (FBR). Many amendments were not even placed before the Senate violating the supreme law of the land.

As expected, parliamentarians of the ruling party, who were not even interested to maintain the quorum, merely acted as rubber stamps. The Finance Bill 2018, handiwork of bureaucrats sitting in the FBR, prepared to please business-turn-politicians, was not only passed in routine, as has been done every year, but sadly by committing gross violations of the Constitution of Islamic Republic of Pakistan ("the Constitution"). Many enactments, mentioned in the forthcoming paragraphs, could not have been made part of Money Bill. These are passed by the House in utter violation of the Constitution and judgements of the Supreme Court, namely, Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt.) Ltd through its GM (Finance), Lahore etc. and others [(2016) 114 TAX 385 (S.C. Pak.)], Mir Muhammad Idris v FOP PLD 2011 SC 213 and Sindh High Court Bar v FOP PLD 2009 SC 789. These amendments will certainly be challenged under Article 199 of the Constitution on the basis of these cases.

Interestingly, nobody in the National Assembly or Senate was ready to take FBR's top management to task on account of their failure to collect even Rs 4000 billion against actual potential of Rs 8,000 billion. Nobody has ever raised the question as to what has prevented FBR from publishing its annual year book for 2016-2017 even after a lapse of eleven months. The allegations of figure fudging, frequently made, get credence by refraining from making public the correct figures of refunds payable, huge amounts of advances taken to show inflated collections and growth of 15%. Time and again, independent sources have requested the public accounts committee to order audit of FBR affairs but this plea has been falling on deaf ears. It shows callousness of the legislators when matter comes to the accountability of an important institution like FBR, so people rightly conclude that their own hands are not clean. The quantum of taxes paid by them vis-à-vis their standard of living has never been probed by FBR. This is an ample evidence of existence of an unholy alliance between the two arms of the state-the Legislature and the Executive.

The passage of the following laws as Money Bill by legislators was in utter violation of Article 79 of the Constitution:

* The Foreign Assets (Declaration and Repatriation) Act, 2018

* The Voluntary Declaration of Domestic Assets Act, 2018

* The Protection of Economic Reforms Act, 1992 (XII of 1992).

These enactments override many laws that were passed by both the Houses. These could not be made part of the Money Bill and should have been approved by the Senate as well. These were earlier laid down as Bills, promulgated through Presidential Ordinances on April 8, 2018-see Rationalising taxation, Business Recorder, May11, 2018, Budget 2018-19: where to go? Business Recorder, May 4, 2018, Budget and taxes, Business Recorder, April 20, 2018.

Interestingly, when original Finance Bill, 2018 was sent for comments of Senate as required under Article 73 of the Constitution the above enactments were not included therein as part of Money Bill. These were, in fact, pending before the Senate as Bills, as laid down in Article 89(a)(ii) of the Constitution. The Upper House should take note of this act of deceit committed by an unelected Finance Minister, Miftah Ismail. The National Assembly is also guilty of violating Article 77 read with Article 162 of the Constitution for discussing and approving a Finance Bill for the next year for which it has no mandate. The Senate should also have refrained in sending its comments for a law that was outside the mandate of the outgoing National Assembly. The Report of Senate Standing Committee on Finance dated May 9, 2018, approved by Senate unanimously, is completely silent about it. It shows that Upper House also violated the well-established principle that there should be no taxation without representation. An assembly that has yet not elected for Fiscal Year 2018-19, opted to levy taxes for that period! Such a mockery of Constitution can only take place in Pakistan. Even President failed to ask for prior approval of the Finance Bill as required under Article 162 of the Constitution.

According to media release of Free and Fair Election Network (FAFEN), National Assembly passed the sixth budget of the ruling party on May 18, 2018. On the day of passage of budget, the following was the position of the House:

Members' Participation

* The National Assembly met for two hours and 41 minutes.

* The sitting started at 1014 hours against the scheduled time of 1000 hours.

* The Speaker presided over the entire sitting.

* The Deputy Speaker was also present.

* The Leader of the House (Prime Minister) attended the sitting for 45 minutes.

* The Opposition Leader was present for 36 minutes.

* As many as 40 lawmakers (12%) were present at the outset and 129 (38%) at the adjournment of sitting.

* The parliamentary leaders of JI, PPPP, MQM, APML, QWP and AJIP attended the sitting.

* Seven minority lawmakers were present.


* Moved by Finance Minister, the House passed the Finance Bill, 2018 after voice voting.

* The House also approved 127 Supplementary Demands for Grants for the financial year 2017-18.

* The Finance Minister laid before the House the Schedule of Authorized Expenditure 2018-19 and the Supplementary Schedule of Authorized Expenditure 2017-18.

* State Minister for Interior introduced the Prevention of Trafficking in Persons Bill, 2018. With the consent of the Opposition Leader, a motion was moved to pass the bill but PPPP Chief Whip opposed it and demanded debate on it following which its consideration was adjourned till next sitting.

Representation and Responsiveness

* Five lawmakers discussed Supplementary Demands for Grants for financial year 2017-18 for 20 minutes.

* The Finance Minister spoke for five minutes after passage of the Finance Bill, 2018 and thanked lawmakers as well as other stakeholders for their recommendations and support during the ongoing budget session.

Both on May 16 & 17, National Assembly could not proceed to pass the Finance Bill, 2018 due to lack of quorum. Fifteen lawmakers expressed their reservations on the Finance Bill, 2018 and spoke for two hours and 35 minutes. Minister for Finance spoke for four minutes and responded to their queries.

Miftah Ismail, on the instructions of ousted Prime Minister and sitting Premier (who says he is head of government just for namesake and actual ruler is his leader Nawaz Sharif), was keen to give amnesties to tax evaders and looters of the national wealth-for which first, Presidential Ordinances were promulgated and then the same laws got approved from National Assembly unconstitutionally as these could not be made part of Money Bill. His unconstitutional selection for Finance Minister was not without a purpose. He was given an assignment by the vested interests. He was on a mission to provide the best possible for those who have been deceiving the nation and FBR and wanted to get whitening schemes at the fag end of the tenure of PML-N government to avoid actions abroad and at home-soon their data would be revealed under OECD Multilateral Treaty signed by Pakistan. Of course, in return they might be asked to fund the forthcoming elections! Otherwise, it was obvious that this matter should have been left for the new-elected Assembly.

Pakistan's economy serves the privileged classes and burdens the low strata with undue high-rate indirect taxes. The militro-judicial-civil-complex, politicians and absentee landowners represent less than 1% of the entire population but enjoy unprecedented exemptions as well as enjoy perks and benefits at the expense of taxpayers' money. In the Finance Act, 2018 their tax rate is reduced to a ridiculous level therefore a rich individual in the next Tax Year 2019 will pay on his total income of Rs 60 million only Rs 480,000 (8%). A partnership firm for the same income will pay Rs 880,000 (14.7%) and a company Rs 1,740,000 (29%).

The Finance Minister through these amendments wanted to discourage companies and other business entities and enrich the already wealthy individuals for years to come. Though the Senate recommended for high rate of income tax for the wealthy individuals earning income above Rs 50 million, he was not inclined to listen to the voices of sanity. The outgoing assembly having no mandate for the next year was asked to vote on a Bill favouring the rich and mighty! The rich-poor divide through such erratic tax measures will further increase. There will be more concentration of wealth in a few hands. Growing inequalities in income and wealth is a serious issue in Pakistan and through such pro-rich tax measures we want to further aggravate it.

The Finance Minister, following in the footsteps of his predecessor (now a fugitive) committed gross violations of the Constitution and none of the members of ruling party raised his or her voice by resisting the amendment in the Protection of Economic Reforms Act, 1992 that could not be made part of Money Bill and required approval of Senate as well. Securing an amendment in a law originally passed by both the Houses through the Finance Bill, was in utter disregard of the constitution. It once again reflected sadly on the mindset of PML-N leadership that has always been keen to violate the supreme law of the land as well as established laws and rules.

Even making Petroleum Products (Petroleum Levy) Ordinance, 1961 (XXV of 1961) as part of Money Bill was a clear violation of the judgement of Supreme Court [(2016) 114 TAX 385 (S.C. Pak.)] which says:

"We may develop this point further; although Article 73(3)(a) of the Constitution states that a Bill shall not be a Money Bill if it provides for the imposition or alteration of a fee or charge for any service rendered, this does not mean that if a particular levy/contribution does not fall within Article 73(2) it must necessarily fall within Article 73(3). Sub-articles (2) and (3) are not mutually exclusive. There may very well be certain levies/contributions that do not fall within the purview of Article 73(3) but still do not qualify the test of Article 73(2) and therefore cannot be introduced by way of a Money Bill, and instead have to follow the regular legislative procedure. The discussion above that the subject contributions/payments do not constitute a tax is sufficient to hold that any amendments to the provisions of the Ordinance of 1971, the Act of 1976, the Act of 1923, the Ordinance of 1968, the Act of 1968 and the Ordinance of 1969 could not have been lawfully made through a Money Bill, i.e. the Finance Acts of 2006 and 2008, as the amendments did not fall within the purview of the provisions of Article 73(2) of the Constitution".

The above judgement of the Supreme Court approved the brilliant discourse and conclusion on Money Bill by the illustrious Justice Mansoor Ali Shah (recently elevated to Supreme Court after serving Chief Justice of Lahore High Court) in 2011 PTD 2643 as under:

"The special legislative procedure is, therefore, an exception and must operate in its restricted scope. Being a special procedure it also has to be construed strictly as it is a deviation from the normal legislative process under the Constitution. Integrity of a money bill must be jealously guarded and matters falling outside the purview of Articles 73(2)(a) to (g) of the Constitution should not be permitted to stealthily crawl into a money bill (at times due to political sophistry of the government in power) -and adulterate its sanctity".

The Parliament has inserted the following sections in the Income Tax Ordinance, 2001 in utter violation of Article 23 of the Constitution:

227C. Restriction on purchase of certain assets.? Notwithstanding anything contained in any law, for the time being in force,-

(a) any application for booking, registration or purchase of a new locally manufactured motor vehicle or for first registration of an imported vehicle shall not be accepted or processed by any vehicle registering authority of Excise and Taxation Department or a manufacturer of a motor vehicle respectively, unless the person is a filer;

(b) any application or request by a person to any authority responsible for registering, recording or attesting transfer of any immovable property, exceeding five million rupees, for registering or attesting the transfer shall not be accepted or processed by such authority, unless the person is a filer."

Article 23 of the Constitution categorically says:

Every citizen shall have the right to acquire, hold and dispose of property in any part of Pakistan, subject to the Constitution and any reasonable restrictions imposed by law in the public interest.

The condition that non-filers cannot purchase property exceeding five million rupees or a new locally manufactured motor vehicle or an imported vehicle is neither reasonable nor in public interest. The same is the case of compulsory buying of property by FBR under newly inserted section 230F(4) of the Income Tax Ordinance, 2001 that is violative of Article 24 of the Constitution. As pointed out in 'Punishing the non-filers', Business Recorder, May18, 2018, the Federal Government in fact has no right to levy tax on immovable property under the Constitution.

Why should a non-resident, not liable to tax in Pakistan or a resident having exempt or below taxable income, be forced to file a return in order to acquire property exceeding Rs 5 million or buying a new vehicle? In any case, FBR gets information about purchase of properties and vehicles through withholding tax mechanism. The Commissioner can issue notice for filing of return and wealth statement if he has reason to believe that the purchaser who paid tax at source as non-filer enjoys taxable income. The legislators have passed a law that infringes the fundamental rights guaranteed in Article 23 and 24 of the Constitution. They also acted beyond their mandate and even legislative competence of levying taxes on immovable property that falls in exclusive domain of the provinces. This shows that the legislators themselves are the worst violators of the supreme law of the land. In such a country can a true democratic government be ever established?

(The writers, lawyers and partners in HUZAIMA, IKRAM & IJAZ, are Adjunct Faculty at Lahore University of Management Sciences)

Copyright Business Recorder, 2018

the author