Huzaima Bukhari and Dr Ikramul Haq
A Collection of tax where it is not due is as detestable as its non-payment when it is due—Nasim Sikander, J in CIT Companies, Lahore v State Cement of Corporation (Pvt) Ltd, Lahore 2002 PTD 1603
This deprivation results in unjustly enriching and benefitting the department—Syed Mansoor Ali Shah, J in Sui Northern Gas Pipelines v Deputy Commissioner of Inland Revenue, etc in (2014) 110 TAX 221 (H.C. LAH.)
In a civilized society the government is always grateful to those citizens who not only pay their own taxes but also act as withholding agents on behalf of the State and collect taxes for the well-being of their fellow countrymen. The State not only recognizes and appreciates their services but also authorises them to hold back a certain percentage of collection as their charges to compensate expenses incurred by them in the performance of State’s official function. In Pakistan, the situation is quite the reverse; the withholding agents are the most insulted and the humiliated.
The Federal Board of Revenue (FBR) treats withholding agents as slaves, no financial compensation is given to them for man-hours and other expenses they bear to collect taxes for the government and on top of that they are subjected to unjustified penal actions by FBR. This shows the real face of our tax machinery that collects less than 10% of total revenues with its own efforts and for the rest not only uses others as withholding agents but also humiliates them. One does not need any other indicator to gauge the level of unfriendly attitude that prevails in FBR.
Our tax baboos sitting in FBR, backed by brown sahibs in the Ministry of Finance, the IMF and the World Bank are destroying the business clime as well as social fabric of society by depriving the people of their self-esteem and legal rights guaranteed under the Constitution of Pakistan.
The judiciary is also not interested in restoring the rights of the people and check highhandedness of tax officials. The rulers have submitted themselves to the dictates of the IMF and other donors, who have only one agenda: to extort as much revenue from our people as possible and make us permanently dependent on them. Our financial enslavement has resulted into an unfettered power for the tax machinery to humiliate and insult each and every citizen of Pakistan.
In the frenzy of meeting target of Rs 3,104 billion for the current fiscal year (Rs 1,814 billion collected during the first eight months), the FBR stalwarts and their field formations are using all kinds of dirty, illegal, harsh, indecent and uncivilized tactics. They are twisting everybody’s arm. In order to meet their targets they are bent on destroying business houses and even 100% state-owned corporations are no exceptions. Even they are being served notices of inflated demands or alleged defaults committed years ago in deducting taxes at source. Undisputed refunds of billions of rupees are unlawfully withheld. It is a pity that at a time when we are faced with threats from internal and external adversaries, our own tax machinery is resorting to such reckless measures to further weaken the nation by creating unprecedented financial hardships for the ordinary people in the streets. The greedy traders and unscrupulous industrialists are not suffering as they are hiding their actual incomes and passing on their tax burdens to common people. Tax amnesty to traders and withholding regime for non-filers unveil the real hidden agenda of our political elite working at the behest of their foreign masters.
The people of Pakistan are the victims of “financial terrorism”, as day by day the IMF and other donors are imposing more and more harsh conditions making the life of the poor miserable. The mighty traders and industrialists, even after substantial reduction in oil prices, are not ready to lower prices. The commercial importers (the mighty traders who do not want to pay their taxes) and powerful contractors (who get contracts by bribing officials) are passing on their tax burden to others, courtesy presumptive taxation under Income Tax Ordinance, 2001.
The levy of taxes on services is the constitutional right of provinces. The federal government violated this constitutional command by levying such taxes under the garb of Income Tax on presumptive basis. This is the worst example of “federal highhandedness” where the victims are the poor people of the less privileged provinces. The constitutional responsibility of distributive justice and social equality was altered, to show just higher collection of tax targets to the IMF and other donors to get more loans.
Former Justice Nasim Sikander of Lahore High Court, in CIT Companies, Lahore v State Cement of Corporation (Pvt) Ltd, Lahore [2002 PTD 1603 = PTCL 2000 CL. 696], made the following pertinent remarks:
“The collection of revenue even as an agent casts a number of duties upon the person required to do so. He is to maintain correct and faithful accounts of all the sums received and then to see their safe credit to the national coffer. He may need additional staff for this purpose and may even be liable if any of his staff members fumbles in accounts deliberately or misappropriate even smallest amount of public money collected. An agent appointed by law or deemed under a similar statute is also liable to a number of penalties if he fails or falters on any account. This phenomenon in fact is a recent development in tax regimes that persons who are otherwise neither employed by the State nor they represent it in any manner are designated to collect Revenue of the State without any ostensible reward. This is a duty cast upon them with no benefit and is coupled with a constant fear of prosecution, penalties and punishments. It is one of the several other prices that one has to pay to live in a society.
These observations by the learned Judge 15 years back have not elicited the attention of our revenue-obsessed governments as even today they are not only forcing the citizens of Pakistan to collect tax on their behalf without any reward or compensation but also imposing on them heavy penalties for inadvertent lapses or non-deduction due to genuine reasons. The woes of taxpayers have been further increased with the judgment reported as Meezan Islamic Funds & Others v DG (Withholding) FBR & Others (2016) TAX 87 (H.C. Kar) upholding the view of FBR that even in exempt cases withholding certificates are to be secured to get waiver from withholding taxes. The Court while passing the order did not realise the high “cost” of getting such exemption certificates. The Supreme Court has suspended the operation of this judgement but only to the extent of petitioners. This is again unfair for others placed equally who did not challenge the perverse interpretation of FBR before the court. Such orders involving principles of law are always in rem and not in persona.
The Supreme Court while deciding the appeal against the judgement of Sindh High Court in Meezan Islamic Funds & Others v DG (Withholding) FBR & Others (2016) TAX 87 (H.C. Kar) should take notice of the fact that liability to withhold tax without compensation is “forced labour” that is prohibited under Article 11 of the Constitution. The Finance Act 2009 inserted sub-section (8) in section 168 of the Income Tax Ordinance, 2001 that says: “Notwithstanding anything contained in any other law or any rules for the time being in force, no amount shall be deducted on account of service charges from the tax withheld or collected by any person under the provisions of this Ordinance”. This provision being violative of Article 11(2) is ultra vires of the Constitution.
Undoubtedly, the withholding agents are being subjected to the worst one can think of: they are receiving indiscriminate and frequent notices of default surcharge, penalties and prosecutions. This irritating state of affairs has forced many of them to close down their businesses and to migrate from Pakistan. They were not ready to pay such a heavy price and that too for living in a society that is not civilized by any standard. Taxes are a price one pays to live in a civilized society, and not in a place where even the basic protection of life and property is non-existent. The State is so callous that it never bothers to protect the life and property of its citizens, rather exploits them ruthlessly. The corrupt and the mighty have been making the best of everything in Pakistan since the inception of this Land of Pure. The common citizens have even been assigned a job for which the government maintains a huge array of tax officials receiving salaries and perquisites from the National Exchequer.
It is a sad reflection on our fiscal management. The incompetent holding key posts in FBR have managed to hoodwink all the governments, military and civil alike, by shifting the blame of low revenues on “massive tax evasion” on the part of the traders and businessmen. In fact, they are the real culprits as they have been discouraging businessmen from paying taxes and inducing them instead to give them their due “share”. The mass scale evasion of taxes can never be possible without the connivance of tax administrators.
In the face of these realities, the FBR stalwarts are getting full support from the worthy Finance Minister, Special Assistant of Prime Minister on Revenue, the IMF and the World Bank to make the lives of ordinary people more miserable and costly. The tax administration is using all kinds of negative tactics to collect revenue targets. The mighty ruling classes are not paying the taxes due from them and the poor are subjected to 17% to 70% GST. The tax administration is posing a threat to society similar to that of religious extremists and the jihadi groups, where both are destabilizing society, one financially and the other politically and socially.
(The writers, lawyers and
partners in law firm HUZAIMA IKRAM & IJAZ, are Adjunct Faculty at Lahore University of Management Sciences)
