Levy of extra 5 per cent sales tax with effect from January 1, 2015 on petroleum products at import and supply stage through an executive order [SRO 1152(I)/2014 dated December 30, 2014] is not only an adverse and unwelcome act bound to burden the poor with more regressive taxation but is an open violation of Article 189 of the Constitution of Pakistan. It exposes the tall claims of the rulers that they want to pass on the benefit of lower oil prices in the international market to citizens.
It is shocking that the federal government is still resorting to taxation through statutory regulatory orders (SROs) ignoring the unambiguous ruling of the Supreme Court in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v. Federation of Pakistan and Others (2013) 108 TAX 1 (S.C.Pak.) holding that “Parliament/Legislature alone and not the Government/ Executive is empowered to levy tax. As far as delegation of such powers to the Government/ Executive is concerned, the same is for the purpose of implementation of such laws, which is to be done by framing rules, or issuing notifications or guidelines, depending upon case to case, as we have come across some of the cases noted hereinabove. But in no case, authority to levy tax for the Federation is to be delegated to the Government/ Executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby”.
Taxation through executive orders is unconstitutional in view of Article 77 read with Article 162 of the Constitution of Pakistan. Through these SROs, the government bypasses the Parliament and commits open violation of the dictum of Supreme Court in the case of Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others (2013) 108 TAX 1 (S.C. Pak) that says:
“It is well settled proposition that levy of tax for the purpose of Federation is not permissible except by or under the authority of Act of Majlis-e-Shoora (Parliament). Reference in this behalf may be made to the case of Cyanamid Pakistan Ltd V. Collector of Customs (PLD 2005 SC 495), wherein it has also been held that such legislative powers cannot be delegated to the Executive Authorities. Also see Government of Pakistan v. Muhammad Ashraf (PLD 1993SC 176) and All Pakistan Textile Mills Associations v. Province of Sindh (2004 YLR 192).”
Taxes constitute substantial part of the price of petroleum products—consumed by the public for personal and business purposes. According to the FBR’s own admission, “the sales tax is the top revenue generating source of federal tax receipts. It constitutes 44 per cent of the total net revenue collection. The gross and net sales tax collection during the year (2013-2014) has been Rs1,034.5 billion and Rs1,002.1 billion showing growths of 18.6 per cent and 18.9 per cent respectively over the collection of fiscal year 2012-13—FBR Biannual Review January-June 2013-14. The FBR confesses that “this significant performance can be attributable to the increased tax rate of sales tax from 16 per cent in 2012-13 to 17 per cent in 2013-14.” This exposes the claim of wonderful achievement of growth in taxes. The growth is at the cost of poor who pay high taxes on POL products. Last year share of POL in sales tax (domestic) was 45.6 per cent.
In the report submitted to Supreme Court by Rana Bhagwandas Commission on July 10, 2009, it was revealed that from 2002 to 2009, the government made Rs10.23 trillion in taxes on petroleum oil and lubricants [POL] products. Part of this huge money could have been used to improve public transport, improve environment and build infrastructure for growth.
It is shameful that in the last 67 years our governments, military and civilian alike, have failed to provide mass transit facility even for Karachi and Lahore and bus service for every city and town despite burdening the citizens with heavy taxation on POL products. On the contrary, consumer loans have been encouraged, especially under Musharraf-Shaukat era, inducing massive purchase of vehicles resulting in enormous profits both for the petroleum companies and car manufacturers monopolised by the foreigners.
Public transport has been the least priority of all the regimes and the real sufferer is common man who cannot afford personal transport. More and more cars on the roads cause pollution, traffic mayhem and are the main source of increase in our oil import bill. According to Finance Minister Ishaq Dar, Pakistan annually imports crude oil and oil products worth US$15 billion. This causes heavy burden on our limited foreign exchange reserves.
In order to cut import bill, we need decent public transport system and use of alternate, renewable energy sources that can solve the prevalent acute problem of power shortage and load-shedding. The challenge before us is to build good public transport system and a clean energy economy.
In a policy statement issued in 2009, the US President said, “The nation that harnesses the power of clean, renewable energy will be the nation that leads the 21st century. Today, we export billions of dollars each year to import the energy we need to power our country with. Our dependence on foreign oil threatens our national security, our environment and our economy. We must make investments in clean energy sources that will put Americans back in control of our energy future, create millions of new jobs and lay the foundation for long-term economic security.”
According to a report in The New York Times in December 2014, “the cost of providing electricity from wind and solar power plants has plummeted over the last five years, so much so that in some markets, renewable generation is now cheaper than coal or natural gas.” It is an extraordinary achievement made possible through generous subsidies and tax credits. The report says that “recent analyses show that even without those subsidies, alternative energies can often compete with traditional sources”. This holds a bright future for renewable energy sources.
Our rulers follow United States in most of the matters, where their personal interests are involved, but not in areas where public welfare can be achieved. In recent years, the US made great strides toward changing energy future. The American Recovery and Reinvestment Act of 2009 (ARRA) constituted an unprecedented and historic investment in the clean energy economy. Our rulers instead of investing in the development of renewable energy and clean technologies that can lead to the energy sources of the future are serving the interests of the oil companies and other vested interests.
We have destroyed our rail system depriving the poor and business houses of cheap and efficient transportation mode while other countries are making huge investments in high speed rail and advanced car batteries, considered as the transportation systems of the future.
It is sad that the government is using higher taxes on petroleum products as means to reduce its fiscal deficit, without realising that price hikes in these items affect economy as a whole and poor masses especially, retard growth in all sectors besides accelerating inflation.
Our tax system benefits the wealthy at the expense of the overwhelming majority of poor Pakistanis. The government, instead of restoring equity in the tax system—reducing corporate tax rates and increase taxes on the rich—is using higher taxes on petroleum products as a means to collect more revenues, thus extending extraordinary benefits to a few powerful oil companies and making life of 95 per cent of the people miserable—only 5 per cent privileged ones remain unaffected.
By plugging loopholes that prevent wealthy companies and individuals from paying a fair share of taxes, the government can generate enough revenues through levy of excess profit tax and carbon tax to build public transport system that would save billions that we mercilessly spend on import of crude oil.