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http://jang.com.pk/thenews/feb2012-weekly/nos-26-02-2012/pol1.htm#1
governance
A call for reforms
Taxes should be imposed through a proper consultation method, preferably through the parliamentary process
By Huzaima Bukhari and Dr. Ikramul Haq
Every civilised society respects and adheres to the cardinal principle that one should not be forced to pay a tax imposed by a government without having the opportunity to vote for or against the tax measure, either directly, or through elected representatives.
The present democratic government, like its predecessors, has not respected during its four years the demand of people for evolving an equitable tax system. Since the exit of Musharraf, the elected government has imposed a number of new tax obligations in violation of the well-established rule "no taxation without representation".
The legislative work related to levying taxes is exercised exclusively by the Federal Board of Revenue (FBR) and the parliament just acts as a rubber stamp. The result is that FBR has failed to collect actual tax potential — which is not less than Rs. 6-8 trillion — and also destroying trade and business growth with its irrational and oppressive tax policies.
Tax system is one of the fundamental elements of a constitutional democracy. The important questions such as who is to be taxed, how much and for what purposes, are essentially political questions. These kinds of questions are always resolved through a political process. How tax obligations are to be imposed, administered and enforced are constitutional questions. The imposition, administration and enforcement of taxes raises problems about the rule of law, proper division of powers, the role of judiciary and so on.
Since the imposition and administration of taxes is a purely constitutional issue, it cannot and should not, be tackled by an executive branch of the government — in our case by the FBR.
Political process for the establishment and reinforcement of a constitutional democracy and democratisation of society has always been destroyed in Pakistan both by military and civilian regimes. The present regime, on assumption of power, instead of taking strict and firm actions against tax evaders and wealth plunderers started protecting them.![]()
Many top politicians, including beneficiaries of the infamous National Reconciliation Ordinance, wanted to safeguard their financial empires inside and outside Pakistan.
The FBR remains busy, shifting the tax burden on the common people and protecting the interests of the rich and mighty. They portray common citizens as tax evaders although everybody having a mobile phone is paying 10% as income tax on each recharge. The real culprits are the rich classes that do not pay taxes according to their ability and for whom the FBR has crafted presumptive and minimum tax regimes so that they can pass on their burden of taxes on the end users.
Tax bureaucracy provides unprecedented help to tax evaders through tax amnesty schemes, one permanently available in the form of section 111(4) of the Income Tax Ordinance, 2001. The much-publicised process of accountability is also a farce. Pay us and go home is the modus operandi of National Accountability Bureau (NAB).
Had the FBR and NAB played their role properly, we would have seen prosecution and confiscation of property of tax evaders and the plunderers of national wealth. On the contrary, even the Prime Minister of the country is ready to be convicted rather than writing a letter to Swiss authorities requesting return of the country's looted wealth. Had the asset-seizure legislation been passed and implemented, by this time the State exchequer would have been credited with billions of much needed extra money.
The present regime has also proved to be yet another advocate of status quo and not a force capable of altering the fate of the poor. The present regime is vigorously imposing new tax obligations for funding their luxuries, depriving the common man of food, health, education and drinking water etc.
Taxes should be imposed through a proper consultation method, preferably through the parliamentary process, rather than through administrative discretion. The government has been forcing the President to keep on issuing badly drafted ordinances prepared by incompetent officials of FBR without any contribution of the Cabinet, let alone eliciting public opinion or expert professional advice.
The excessive use of administrative discretion and delegation of legislative authority to tax bureaucracy has destroyed the entire tax system of the country. The tax bureaucrats sitting in FBR have been playing havoc with the tax laws by vehemently issuing Statutory Regulatory Orders (SROs) and administrative instructions. The SRO culture continues unabated even by democratic governments in order to serve financial interests of cartels and impose all kinds of oppressive, anti-people tax laws as well as introduce recovery measures through administrative instructions.
Tax administrative authorities should be given powers to deal with tax evasion and avoidance, but this kind of broad administrative discretion to alter the law passed by the parliament is unconstitutional. It violates Article 162 of the Constitution and negates the principle of the Rule of Law. Tax system and tax laws should be framed and enacted through a democratic process and once they are passed, properly implemented by the tax administration.
All the segments of society should adhere to the rule that nobody is above the law. In Pakistan, these laws are meant only for the helpless, whereas the mighty and the privileged classes resort to open defiance of law.
No tax should be imposed unless the government has actually exercised the legal power to impose it. In some countries such as France and Belgium, this "right" to choose untaxed alternatives is understood in constitutional rules enjoining the strict interpretation of law.
There exists a serious danger in today's Pakistan that the very legitimacy of the taxation system may be destroyed, if not ultimately, the legitimacy of the government. Oppressive tax measures are not a basis for good governance. The fragile trust between citizens and the rulers, professionals and their clients, employers and employees is easily destroyed, as is the tenuous social solidarity between groups at different levels of society.— A Freiberg Ripple From the Bottom of the Harbour: Some Social Ramifications of Taxation Fraud (1988) 12 Criminal Law Journal 136, at 158.
The present regime must understand that Rule of Law in the context of tax requires that taxation must include not just the safety of the individual against unlawful actions of fiscal authorities, but also assurance of the loyal taxpayer that he is not abused and taken for a ride, whereas smarter people get away with tax avoidance/amnesty schemes.
We will never achieve stability if our political, legal and financial institutions remain threatened by those having money power. These basic institutions and the associated value structures should be properly safeguarded, as these are in fact, public capital and the social infrastructure of liberal democratic society.
If the political leadership wants to protect the interests of citizens, it must pave the way for reform of democratic institutions without which instability will deepen. There is a genuine apprehension that any further disintegration of our political, legal and financial institutions may culminate into a complete disaster.
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The writers, tax lawyers, are Adjunct Professors at Lahore University of Management Sciences (LUMS)
