The 2001 Income Tax Ordinance was enacted by General Pervez Musharraf on September 13, 2001 through a presidential decree repealing the 1979 Income Tax Ordinance, which was also introduced by a military dictator, General Zia-ul-Haq. In Section 1 (3) EStV 2001 it says: “It comes into force on the day on which the federal government can appoint by publication in the official gazette.” The federal government has it from July 1, 2002 until SRO 381 (I) / 2002 of June 15, 2002 came into force. The 2002 Finance Ordinance made 115 changes to the 2001 Income Tax Ordinance before it came into effect. With the Finance Acts 2003 and 2004, 332 and 339 amendments were made to this Act. This has become a unique law that has undergone such massive changes in such a short time after its promulgation.
The number of changes introduced into this regulation over the last 15 years [2005 to 2020] of elected representatives (sic) in thousands! A wise move would have been to repeal it and introduce a simple income tax law (in both English and Urdu) through a law of parliament. However, the Musharraf controlled the gathering [held inaugural session on November 16, 2002 and completed its term on November 15, 2007]I couldn’t dare to think about it, as always keen to validate the illegal acts / laws of a military dictator since October 12, 1999. After that, during the decade of democracy [2008-18]The governments of the Pakistan People Party and the Muslim League (Nawaz) also showed no interest in repealing the law promulgated by a military dictator and approved by his “loyal” civilian government (sic). The Pakistani coalition government Tehreek-i-Insaf (PTI), which took power in August 2018, is also keeping this legacy of Musharraf alive, but claims to be “true” representatives of Naya [new] Pakistan.
The Pakistani Supreme Court correctly stated in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (SC Pak): “Since the establishment of Pakistan, we have not been able to enact an income tax law properly discussed in the Assembly. Both ordinances were enacted during the martial law regime, otherwise the constitution stipulated a four-month period for an ordinance; if the ordinance is not submitted to the assembly and passed as law, the ordinance will automatically expire. This aspect also shows that the Constitution has obliged the legislature to shape the laws within the parameters set out in the constitutional scheme. ”
The 2001 Income Tax Ordinance is a highly complex law that has been poorly drafted and ruthlessly amended by all civil governments since 2008.
Over the past 19 years, and despite over 2500 changes, it has resulted in enormous and inappropriate litigation. The Apex Court found in (2009) 100 Tax 81 (SC Pak) that:
“The fact that the regulation in question was enacted and various changes were made both before and after the enforcement of the 2001 regulation raises the controversy that the regulation in question was enacted without careful debate on the issue on which the auditors and concerned were concerned Departments were forced to discuss the issues in different courts ”.
We have pointed to various errors in wording and concepts since its inception (see Income Tax Law and Practice, Volume I, pp. 1-14), but none of the governments bothered to take these into account, and ultimately revenue Billions of dollars lost if the Supreme Court upheld our position in (2009) 100 Tax 81 (SC Pak) as follows:
“It seems that the regulation was drafted in a hurry and the draftsman did not include this important provision. This observation is supported by the fact that the regulation has been subject to rapid, successive and extensive changes, particularly from the outset. “It can be seen that Section 238 provides that the ordinance shall come into force on a date to be appointed by the Federal Government by publication in the Official Journal. Accordingly, the regulation came into force on June 16, 2002 (SRO No. 381 (I) / 2002) of July 16, 2002, but with more or less 1000 changes introduced by the 2002 Financial Regulation. as calculated by the learned lawyer for the respondents … Had the unchanged provision of Section 239 (1) of the Code of Law continued, no difficulties would have arisen with regard to the handling of the assessment mandates issued for the assessment year ends on June 30, 2003. In this case, Valuations up to this period would have been regulated under the repealed regulation, while evaluations after the enforcement of the 2001 regulation would have been regulated under the latter regulation. “
In Paragraph 53 of (2009) 100 Tax 81 (SC Pak), the Supreme Court categorically ruled that “the language, content and scope of the authority to change and further amend a rating, as well as the authority to revise a rating, must be reviewed and the power to correct the errors provided in these sections to bring them in line with the legislative intent to consolidate the Income Tax Act so that it can be easily understood by taxpayers. “This judgment was passed on June 22nd, 2009 and to date neither government nor parliament have implemented the command of the Supreme Court. The Federal Board of Revenue (FBR) has lost and is still losing significant revenue cases due to conflicting and confusing provisions of the 2001 Income Tax Ordinance. The Revenuecracy, however, is least pressured to propose its repeal and introduce it as a law of Parliament Apex Court instruction that is “easy for taxpayers to understand”. They fucking care about helping the taxpayer!
The power of revenuecracy lies in the “complexity” of tax codes and they exercise arbitrary powers through rules, even if they do not require parliamentary approval. You will never prepare a simple law to help citizens.
The martial provision of General Musharraf’s Act is Section 3 of the 2001 Income Tax Ordinance: “The provisions of this ordinance apply notwithstanding any provisions to the contrary in other current laws.” Based on this provision, Inland Revenue Service (IRS) officials mistakenly believe, that all other laws, if in conflict with the 2001 Income Tax Ordinance, will apply without hindrance prior to this section. For the general reader, it can be stated that non-obstructive provisions in a particular law are intended to have an overriding effect when a conflicting provision of another law conflicts, and if there is no such conflict, the overriding provision will not be applied.
The correct rule of interpretation differs significantly from what the IRS wing of the FBR believes and practices. The non-fruitful provisions of the 2001 Income Tax Ordinance cannot override any special statutes containing the same provisions enacted before or after this provision under dictum established by the Pakistani Supreme Court at Amjad Qadoos v Chairman Accountability Bureau (NAB) Islamabad & Others 2014 SCMR 1567 as under:
“In relation to the controversy over whether the NAB Regulation would take precedence over the Income Tax Regulation, it would turn out that both pieces of legislation contain non-obstante clauses, which provide that the provisions of each regulation take precedence regardless of any provisions currently in force . Obviously, this seems to be the source of conflict in the provisions of the above legal instruments, i.e. the Income Tax Regulation and the NAB Regulation. In this context, it should be seen that such non-obstante clauses are contained in most legal instruments, which restrict either a citizen’s freedom or his financial resources, and possibly for the reason that they are designed to be watertight and leave no room for the citizen If he finds that he has committed a crime or is obliged to pay taxes to the state, he is escaping these provisions. “
“In our opinion, the answer to this controversy would be to determine whether or not one of the statutes is a special law, which then either takes precedence over the other or if both are special laws, what about the situation? In this context, the case of Mr. Elahi Cotton Mills Ltd. and others (see above) referenced in which it was unequivocally stated that the Income Tax Ordinance is a general law of the Economic Reform Ordinance of 1992 and thus the provisions of the latter would prevail. Similarly, in the case of Khan Asfandyar Wali and others (see above), it was found that the NAB Regulation was a special law and therefore would take precedence over general laws, although at the same time certain provisions were put down and certain recommendations made by the federal government that same change. Finally, in the case of the IG HQ Frontier Corps and others (see above), it was determined that a special law would take precedence over a general law, even though it was made under that general law. In light of the above discussion, we can without hesitation state that the NAB Regulation is a special law and therefore would take precedence over the provisions of the Income Tax Regulation as a general law. “
The above decision of the Supreme Court comprised two aspects:
i) Special law versus general law
ii) Legislation related to the time frame
The Supreme Court ruled in the above case that the non-obstante provision of a special law cannot be overridden by the non-obstante provision of a general law, even if it is later enacted.
The above should only emphasize that a general’s income tax law, which is “common law,” cannot override the same general’s special law which is the 1999 NAB regulation. Both are bad laws! It is time for the PTI government to prepare and offer draft Income Tax (which includes Taxpayers’ Bill of Rights) and Accountability Acts for public debate. Parliament should get rid of both and, after the public debate and after the relevant standing committees seek input from experts, pass new laws. We can never establish a tax culture and accountability unless new simple tax codes and anti-financial crime laws are passed and implemented that take tough action, without fear and favor or discrimination, against those who indulge in tax evasion and public officials who engage in corrupt practices involved. All exceptions provided for in the existing Income Tax Act should be abolished and lower rates applied on as broad a basis as possible. In the area of accountability, investigative powers should rest with an independent commission headed by a retired Supreme Court judge and members who specialize in solving financial crimes. This autonomous commission must work within the framework of Article 10A of the Constitution.
(The authors, lawyers and partners in Huzaima, Ikram & Ijaz are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)
Copyright Business Recorder, 2020