Senate committee rejects changes to tax laws

Finance panel finds most of legal amendments in violation of constitution

ISLAMABAD: In a defeat to the government, the Senate Standing Committee on Finance and Revenue on Wednesday rejected a bill that had been laid in parliament to give permanent legal cover to the Tax Laws (Second Amendment) Ordinance.

The Senate committee rejected the bill with a thin majority of 3-2 after finding most of the legal amendments in violation of the constitution and judgement of the Supreme Court of Pakistan.

The legislative adviser of the Ministry of Law and Justice also endorsed the viewpoint of the standing committee that a majority of the amendments that the government introduced through a money bill did not fall within the definition of money bill.

The amendments had been made as a finance or money bill - a constitutional procedure that only authorises the National Assembly to impose and reduce taxes while Senate’s powers are limited to the extent of giving recommendations.

The Pakistan Tehreek-e-Insaf (PTI) government brought significant amendments through the Tax Laws (Second Amendment) Ordinance 2019, which was promulgated by the president of Pakistan on December 26, 2019 and came into force at once.

However, a majority of the clauses were related to the imposition of fines and penalties and giving administrative powers to the tax authorities. About two weeks ago, the government laid the bill before the National Assembly for approval. The lower house then sent the tax laws bill to the Senate for recommendations.

During scrutiny of the bill, it was found that about 90% of the amendments were not related to the money bill, said Senator Farooq H Naek, Chairman of the Senate Standing Committee on Finance. He said the 90% amendments were related to imposing penalties and fines, which did not fall under the ambit of money bill.

Legal changes related to imposing fines and penalties can only be made under Article 73 of the constitution, which empowers both houses of parliament - the National Assembly and Senate - to cast vote.

The money bill is processed under Article 70 of the Constitution.

Senator Naek, who is also a reputed lawyer of the apex court, said the government’s decision to impose penalties through the money bill was also in violation of the judgement of the Supreme Court of Pakistan.

Leader of the House in Senate and member of the standing committee Senator Shibli Faraz also endorsed the committee’s viewpoint that penalties and fines did not fall under the ambit of money bill.

However, Senator Faraz and Senator Mian Ateeq of the MQM voted in favour of the bill while three opposition senators voted against the bill. Despite rejection of the bill by the standing committee, the National Assembly still has powers to approve it.

The legal amendments are already in force but will lapse after a certain period if the National Assembly did not approve the Tax Laws (Second Amendment) Bill.

Four tax laws empower the government to impose penalties and fines through the money bill, said Dr Hamid Atiq Sarwar, Member Inland Revenue Policy of the FBR.

Imposition of fines and penalties does not fall under the ambit of money bill, said Riffat Butt, Legislative Adviser of the Ministry of Law and Justice. She said the FBR took the stance that since there was a precedent for imposing fines through the money bill, there should not be any issue this time as well.

The government did not have a choice but to increase fines and penalties to satisfy the Financial Action Task Force (FATF), said Sarwar while giving the rationale behind the changes. The FBR member said the government was bound by the FATF timelines to increase these penalties and had to send a report to the FATF Secretariat by February 2.

The committee chairman did not question the rationale of imposing fines but he said the government adopted an unconstitutional way to bring these changes. The standing committee rejected the clause through which the government had set up the Directorate General of Law and Prosecution.

It said the directorate should be established through a regular legislative process. Through another amendment, the government has empowered Pakistan Customs’ officials to use firearms during antismuggling operations. The standing committee also rejected this, saying customs officials could not be given powers to fire at people.

“Has the FATF asked the government to allow customs officials to fire at people,” questioned Naek, while criticising the government for doing everything under the garb of FATF.

Through the Tax Laws (Second Amendment) Ordinance, the government imposed penalties and increased fines on the smuggling of goods comprising currency, gold, silver, platinum and precious stones in any form.

Through the same ordinance, the government also lowered the tax rate on bringing hot foreign money by banking companies and financial institutions.

The State Bank of Pakistan has so far attracted slightly over $3 billion in hot foreign money by keeping interest rates high and reducing tax liabilities.

The government has imposed penalties and introduced punitive actions for not printing retail prices with sales tax on retail goods and bringing exempted goods from “tax-exempt areas” of Azad Jammu and Kashmir, Gilgit-Baltistan and erstwhile tribal areas into the tariff areas.

The amendment was rejected by the committee.