“The International Monetary Fund (IMF) on Monday urged Pakistan to follow the Constitution in order to resolve its political disputes, as Prime Minister Shehbaz Sharif contacted Managing Director Kristalina Georgieva to revive the derailed $6.5 billion bailout package apparently in a last-ditch effort to avoid default…. “We take note of the recent political developments, and while we do not comment on domestic politics, we do hope that a peaceful way forward is found in line with the Constitution and rule of law…. The statement came on the heels of an ongoing crackdown against the PTI workers, abductions of people, breach of the 90-day constitutional limit to hold elections in the two provinces and trial of civilians in military courts under the Army Act. Usually, the IMF does not comment on political matters”—IMF spells outs terms to unlock bailout, The Express Tribune, May 30, 2023
The Managing Director of the IMF, as quoted above, has righty stressed the enforcement of the Constitution of Islamic Republic of Pakistan [“the Constitution”], rule of law and “peaceful way forward” in the resolution of ongoing political stalemate in Pakistan. However, the IMF must also express its indignation on the role of the Federal Board of Revenue (FBR) as legislator whereas its defined role under the law is that of tax collection agency.
The constitutional jurisdiction of FBR, being part of executive, does not allow it to seek tax proposals and prepare the Finance Bill, which is none of its business. In fact, this amounts to flagrant violation of the Constitution. This is the sole responsibility of the Legislature as held by the Supreme Court in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak). The Constitution forbids any of the organs to usurp or meddle into the matters of other organs. Usurping the powers of an organ by another organ or organs leads to complete fiasco as elaborated by Supreme Court of Pakistan in a number of cases.
Every year before preparation of annual federal budget, FBR seeks proposals from officers, trade/professional bodies, tax bars, and other stakeholders but the question is: under what law? Instead of performing its prime duty of collecting revenues—where due but avoided—FBR indulges in constituting or working with commissions, committees to ponder over many issues relating to tax policy and administrative reforms, which are in fact lie in the domain of the sovereign Parliament under the Constitution.
Each year, after this fruitless exercise, the Finance Bill makes existing tax codes more complicated due to imprudent amendments burdening the citizens with unconstitutional obligations to act as withholding tax agents with specific restriction of not being entitled to any compensation that is violation of fundamental rights under Article 11(2) of the Constitution that prohibits all forms of forced labour.
It is obvious that FBR is more eager to do the job of legislators. Recently, on the recommendation of the Advisory Board, some committees were formed to suggest measures for improvement in the taxation structure and codes, in addition to work assigned to Reforms and Resource Mobilization Commission (RRMC) by the finance minister. None of the committees formed or even RRMC has come up with any meaningful plan of paradigm shift—generalised proposals have been made by copying from here and there rather than outing a comprehensive reform agenda. The committees/RRMC are not capable of suggesting pro-growth changes in the tax system—they are devoid of critical thinking let alone, suggest innovations! Most of the proposals by RRMC are anti-business forcing decorporatization and harming large-scale industries
The Constitution is a social contract between the State and its citizens and any infringement cannot be taken lightly. One wonders how legislators have given powers to FBR to propose Finance Bills and issue statutory regulatory orders (SROs) granting exemption and varying tax rates etc when the Constitution makes it clear under Article 77 that “no tax shall be levied for the purposes of the Federation except by or under the authority of the Act of Parliament”.
It is the legislators’ duty to decide tax policy, frame tax codes and make amendments. The Standing Committees of federal and provincial assemblies on revenue, comprising members of all elected parties, should themselves prepare Money Bills after public debates, televised hearings of experts summoned and/or seeking written proposals from stakeholders.
In the CIT v Eli Lily (Pvt) Ltd, Justice Ch. Ijaz Ahmad in his separate note held as under:
“Our Constitution is based on trichotomy as law laid down by this Court in various pronouncements such as Zia ur Rehman’s case PLD 1973 SC 49, Mian Muhammad Nawaz Sharif’s case PLD 1993 SC 473 and Hakim Ali’s case PLD 1992 SC 595. The ratio of the aforesaid cases is as follows:—
Legislator to legislate the laws;
Executive to implement;
Judiciary to interpret the Law and Constitution
“2. It is a settled law that the Constitution has to be read as an organic whole as law laid down by this Court in various pronouncements. See Reference by the President PLD 1957 SC 219. The Constitution has confined the aforesaid organs of the state by clear demarcation. The Constitution forbids any of the organs to usurp or meddle into the matters of other organs. Usurping the powers of an organ by another organ or organs leads to complete fiasco. According to my understanding of the Constitution, the machinery of the Constitution has delicately established an equilibrium and harmony among all the organs, limiting them not to go beyond their limits. Every Article of the Constitution has its own significance and importance but Article 4 read with Article 5(2) commands each and every citizen and organ to remain within its bounds as is evident from the statement of the Article. Article 4 directs every citizen to act in accordance with law whereas Article 5(2) demands obedience to the Constitution. Aforesaid Articles were interpreted by the Apex Court of this country and laid down various principles including that even Chief Executive of the country is not omnipotent than the Constitution. See Chaudhry Zahoor Elahi’s case (PLD 1975 SC 383) and Zahid Akhtar’s case PLD 1995 SC 530…. Legislators should legislate after securing necessary views from every stake holder through deliberations and consultations, keeping in view all the aspects and circumstances at, the time of’ framing the law. Generally speaking Constitution is based on trichotomy whereas according to my understanding Constitution is based on quadruple which are as follows:—
People of Pakistan.
Constitution is a social binding contract among the aforesaid organs of the State. From preamble to the last Article of the Constitution, duties and obligation have been assigned to every organs of the State so as to get prosperity of the people of Pakistan. It is for this reason the Constitution has to be read as an organic whole for the purpose of maintaining balance in every sphere of life such as opportunities of job, social justice distribution of wealth etc”.
The legislative work related to framing tax policy and proposing changes in tax codes is being unconstitutionally exercised by FBR, and National Assembly just acts as a rubber stamp. The result is that FBR has failed to collect actual tax potential—which is not less than Rs 14 trillion at federal level alone—and is also destroying trade and business growth with its irrational and oppressive tax policies as elaborated in ‘Towards flat, low-rate broad and predictable taxes’ [revised and expanded edition PRIME (2020)].
Tax system is one of the fundamental elements of a constitutional democracy. Important questions such as who is to be taxed, how much and for what purposes, are essentially political questions that are always resolved through political processes. How tax obligations are to be imposed, administered and enforced are constitutional questions. The imposition, administration and enforcement of taxes raise vital issues about the rule of law, proper division of powers, and the role of judiciary and soon. How does FBR decide these issues and seek proposals from stakeholders?
In the CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak), Justice Ch. Ijaz Ahmad in Para 3 of his note observed:
“Taxing laws in particular must be framed in such a manner that people of Pakistan themselves voluntarily pay the taxes encouragingly and honestly. Such a motivation can only be infused among the people by eliminating the fear of being exploited by the machinery and income tax authorities. Such motivation will encourage our people to join the list of taxpaying nations consequently stabilizing the financial position of the state helping Nation get rid of IMF and World Bank. Fixing upper and lower tax limits for all occupants, industrialists and professionals other than salaried people will help inculcate a sense of responsibility and an encouragement among the people. Having achieved the maximum tax limit, the rigours of law should not touch the assessees. Once this legal technique is adopted, every person shall try his level best to reach the maximum level rather than avoiding paying the tax. This formula will also eradicate social evils of concealing, lying and erroneously submitting income tax returns resultantly providing a better and stronger social system…”
FBR is merely a tax collection body and nothing else. It should first of all take all those legislators to task who are violating the command of Article 5(2) of the Constitution to pay their taxes diligently. Majority of the legislators, who are under oath to safeguard the Constitution, are the worst violators by not filing tax returns or declaring laughable incomes but accumulating assets worth billions of rupees. Pakistan is a unique country where legislators and administrators openly violate the Constitution and even well-educated members of civil society and human right activists ask the courts to take suo motu action, or make lawyers file pro bono petitions but keep on voting these violators in power. They never even bother to sue state functionaries for their unlawful acts or not fulfilling the obligations imposed by laws! This is called “collective apathy” or “learned helplessness’.Huzaima Bukhari, Dr Ikramul Haq & Abdul Rauf Shakoori, "IMF, Constitution & tax codes," Business recorder. 2023-06-02.
Keywords: Economics , Monetary fund , Tax policy , Political disputes , World Bank , Shehbaz Sharif , Kristalina Georgieva , Ch. Ijaz Ahmad , Pakistan , IMF , FBR , PLD , PRIME