A fiscal statute cannot be struck down solely on the ground that the rate of tax levied is unreasonably high
By Anthony Williams
Nobody likes to pay taxes, just as nobody like to go out and buy life insurance. Lack of “clarity” is the main determinant in both the situations, though their is no doubting their “certainty”, which is immortalised by the phrase, “but in this world nothing can be said to be certain, except death and taxes.” In May of this year, The Supreme Court proceeded on its suo motu notice of ‘unreasonable’ deductions made from consumers’ mobile top-ups on the pretext of withholding taxes and other charges. The Honourable Chief Justice Mian Saqib Nisar asked the government to answer these questions,”Why is withholding tax charged [on mobile top-ups]? Isn’t withholding tax charged in order to penalise those who otherwise do not pay applicable taxes?”, “Isn’t double taxing illegal?” , “How are they charging withholding tax from 140 million mobile service subscribers who are not eligible to pay taxes?”, “How are those people who are not eligible to pay taxes supposed to get their deducted withholding tax refunded?”, “[Also] tell us the law under which sales tax is charged from people,” “The FBR and the provincial governments should tell the court under which law this [provincial] sales tax is applicable,”.
The purpose of this article is to seek clarity on the matter of tax liability of a mobile user in Pakistan, in the context of the above questions, assuming that he or she has no source of income (examples would be, a student, a house-wife, an unemployed person, a person with permanent mental/physical disabilities, a person deprived of fundamental economic rights etc.). Sales tax (as explained in a previous article “sales tax is not income tax”) is a consumption tax and the mobile user has to pay it, irrespective of the fact that he or she earn any income or not. And the only way to avoid paying sales tax, is to not use the mobile service at all and to never have the need for mobile top-ups. As for the rates of sales tax on mobile service, presently at 19.5% of the total top-up amount (Rs.19.50 on top-up of Rs.100), the matter falls in the domain of the executive rather than that of the judiciary, as can be inferred from a recent court case: In The Peshawar High Court, Pakistan Telecommunication Company Ltd Versus Government of Khyber Pakhtunkhwa (KPK)[(2017) 116 Tax 83 (H.C. Pesh.)], The Honourable Chief Justice, Yahya Afridi ruled that (among other things) V.
A fiscal statute cannot be struck down solely on the ground that the rate of tax levied is unreasonably high;. The only silver lining of this particular discussion on sales tax on mobile services has led to and awaiting the judgement from the Supreme Court of Pakistan on “Whether mobile services (digital services) are “goods” or “services” for the purpose of taxing statues?”, because only then the jurisdiction of the federal or provincial governments will be established and people of Pakistan, will get the relief from double taxation on mobile services; presently being charged by the federal as well as provincial governments.
The scheme (structure) of Income Tax Law (Income Tax Ordinance, 2001) in Pakistan as explained by Dr. Ikram-ul-Haq as appointed by the court as an amicus curiae in the case: In The Lahore High Court, Lone Cold Storage Lahore Versus The Revenue Officer, Lahore Electric Power Co. etc.; he, amicus, argued that there are three regimes running through the Ordinance, namely; tax on total income (direct tax); presumptive and minimum tax. As it was mentioned earlier in this article, non of our mobile user (student, house-wife etc.) are earning any income; so their tax liability according to the present tax law is zero (direct tax regime), which makes this tax, if collected under this regime as “Double Taxation”. Similarly, the presumptive tax regime in the Income Tax Ordinance 2001 is applicable on business, commercial and manufacturing-related activities; it presumes (hence the name “presumptive tax”) the existence of income like sales, commissions etc. and since we are talking about non-business Individuals (only natural persons can make mobile calls till the time Artificial Intelligence technology gives this ability to corporate entities – legal persons), so there can be no presumption and there is no presumption in the present tax law of income of a student, a house-wife, an unemployed person, a person with permanent mental/physical disabilities, a person deprived of fundamental economic rights; which makes this tax, if collected under this regime as “Confiscatory Tax”. And at last we come to the third regime “minimum tax”, for which even the courts have ruled that the legislature has the power to impose on any person, class of persons etc.; terming it as a “species” of income tax and for which the tax law itself says that it’s applicable on all persons even when their tax liability is zero or negative (at loss).
Which may be true, for which only one suggestion would put all this discussion of “double taxation”, “confiscatory taxation” etc. to rest and that is a request to the Honourable Chief Justice of Pakistan to revisit (full bench of the Supreme Court) Messrs ELAHI Cotton Mills LTD. and others v. Federation of Pakistan through Secretary M/o Finance, Islamabad and 6 others (1997) 76 Tax 5 (S.C. Pak.) case.
Anthony Williams is CEO of Tax Dosti with 20 years of experience of teaching and practising tax laws of Pakistan.