SHC strikes down federal duty on calls

Court says Centre did not have authority to tax telecommunication services


Shahbaz Rana October 21, 2021
Currently, the gap between local manufacturing and import of mobile phones in Pakistan stands at 12-15%. PHOTO: FILE

ISLAMABAD:

The Sindh High Court has struck down the federal excise duty of 75 paisas on every phone call of over five minutes’ duration and declared the levy against the Constitution.

The court’s verdict has settled the federal and provincial governments’ domains in taxing the telecommunication services.

The provincial court knocked down the tax on the grounds that the federal government did not have the authority to tax telecommunication services that under the Constitution fell under the provincial domain.

“We are of the view that impugned legislation, Entry 6A to Table-II of First Schedule ultra vires to the Constitution and as a consequence whereof is being strike down and the petitions are as such allowed to this effect,” read the SHC judgment.

Read: Experts weigh in on tax on mobile phone calls

Three telecommunication service providers -- Pakistan Mobile Communication Limited, Pak Telecom Mobile Ltd and Telenor Pakistan had challenged the levy in the SHC.

The response of the Federal Board of Revenue (FBR) spokesperson Asad Tahir was awaited till filing of the story.

In the Finance Bill, Adviser Shaukat Tarin had proposed 10 paisas tax on each SMS, Re1 per call of more than three minutes and Rs5 per 1 gigabyte of internet usage.

However, following public backlash, the government had withdrawn the SMS and internet tax but decided to charge 75 paisas per telephone call exceeding the duration of five minutes.

The tax was imposed to generate Rs15 billion in the current fiscal year.

The development came amid tough negotiations between Pakistan and the International Monetary Fund (IMF) on the fate of the 6th Review under the $6 billion programme.

After both the sides could not reach to a staff-level agreement by the deadline, the finance adviser had announced that the finance secretary would stay in Washington till Tuesday. Sources said that the finance adviser and the secretary had extended their stay in Washington till Thursday (today).

During this week, the IMF shared the draft of the Memorandum of Economic and Financial Policies (MEFP) with Pakistan and discussions took place around the proposed draft.

They said that the most contentious issue was the primary budget deficit and to come close to the IMF proposed number, discussions during the last two days continued about the quantum of the additional taxes that the government would have to impose to appease the global lender.

Due to trust deficit, rooted in the government’s inability to deliver on promises that it made with the IMF in April this year, this time the lender is asking to take the measures upfront, the sources added.

The staff-level agreement is likely to be on the terms of the IMF that the government till Friday was reluctant to accept.

While deciding the tax on mobile calls, the SHC judgment stated that the constitutional scheme did not permit two taxes in respect of same event and that too being imposed by two separate legislatures -- the Centre and province.

It further stated that the 18th Amendment had changed a number of articles of Constitution. One of the articles for the purposes of present controversy, it added, was Article 142.

Article 142 c says that subject to paragraph (b), a provincial assembly shall, Parliament shall not, have power to make laws with respect to any matter not enumerated in the Federal Legislative List.

The 18th Amendment had abolished the concurrent list to the Constitution whereas the federal legislative list remained intact with few additions.

Leftover subjects not forming part of Federal Legislative List were normally being considered within the domain of provinces. The amended Article 142(c) then allowed the provincial assemblies to legislate on matters not contained in the Federal Legislative List.

The petitioners had argued that after 18th Amendment to the Constitution, the impugned amendment of 6A Table II First should be declared ultra vires the Constitution.

They had argued that via the 18th Amendment, the parliament had excluded subject of sales tax on services from purview of the federation.

The petitioners’ primary contention was that the levy and collection of Federal Excise Duty under the impugned Entry 6A within the area of Sindh was in violation of the legislative competence, as established through Entry No 49 of Federal Legislative List to Constitution.

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