GST hike: Uproar in Senate over petroleum tax increase

Opposition stages walkout, govt says decision ‘legal, fair’

ISLAMABAD:

The government’s decision to impose an additional 5% sales tax on petroleum products sparked an uproar in parliament on Thursday, with the opposition staging a unified walkout, calling the move unconstitutional.

“This decision is unconstitutional and in total violation of Supreme Court judgments,” said Senator Raza Rabbani (PPP, Sindh) while announcing the walkout. Rabbani referred to Article 77 of the Constitution which states that taxes can only be imposed through legislation.

Finance Minister Ishaq Dar tried to persuade the opposition that his actions were legal, but relied mostly on arguments that the government needs the money.



“We would have had to cut the development budget if we did not take this decision,” Dar said. “Thirty billion rupees have already been spent in military operations [against the Taliban] and an estimated $1 billion will be needed for rehabilitation of internally displaced persons [IDPs].” Dar referred to components of the National Action Plan against terrorism that all parties agreed upon in response to the Taliban attack on Army Public School in Peshawar. “The Rapid Response Force and additional police battalions would need another Rs30 billion,” he said.

On the legal front, the finance minister quoted sub-section 2(b) of Section 3 of the Sales Tax Act of 1999 to argue that his actions were legal. However, Senator Rabbani pointed out that the Supreme Court recently ruled that the Sales Tax Act does not give the government the power to levy taxes by executive fiat.

Dar then pointed out that the same tactic had been used by the PPP under the Zardari Administration. Rabbani, a constitutional law expert and a member of the left wing of the PPP, responded: “If something went wrong during our times should be equally condemned and I do that,” going on to argue that if the government disagreed with the judiciary’s interpretation of the Sales Tax Act, it should challenge it in court.

Rabbani then spoke of the political hypocrisy of the Nawaz administration’s stance on the matter, pointing to the PML-N manifesto which stated that the ruling party believed in increasing tax revenue through income taxes, not consumption taxes. He also said that the rate of taxes imposed on petroleum products with this decision was the highest in Pakistani history.

Dar, in turn, defended the government’s record on petroleum prices, stating that the combined effect of recently announced price cuts would result in a combined Rs400 billion in reduced costs to consumers, which would more than offset the Rs17.5 billion that the government would be able to collect in additional revenue over the next five months through this tax. He added that the tax would cover only a quarter of the Rs68 billion revenue shortfall that the government faces as a result of the oil price decreases.

At one point, Dar effectively admitted that the move was an act of desperation. “I did not have any other tools available to me,” he said.

Other senators also chimed in with opposition to the government’s move. Senator Saeedul Hassan Mandokhail (PML-Q, Balochistan) asked the government to assure parliament that the tax would be lowered when global oil prices rose again, an assurance that the finance minister provided, adding that the government routinely lowers taxes to shield consumers from the impact of rising oil prices. “The government is not in the petroleum business,” said Dar, perhaps forgetting that the largest oil companies in the country are all state-owned.

Although there was discussion over the issue, Senate Chairman Nayyer Hussain Bukhari ruled that debate on legal aspects of the sales tax hike be held on Monday. The finance minister also suggested that the Senate could ask the Oil and Gas Regulatory Authority for a briefing on how oil prices are set.

Published in The Express Tribune, January 2^nd, 2014.