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The issue before Supreme Court in Constitutional Petition 35 of 2016, Muhammad Hanif Abbasi v Imran Khan Niazi [PLD 2018 SC 189] was declaration of assets by Imran Khan held through an offshore company, Niazi Services Limited (NSL)—a Jersey-based limited liability company formed on 10.5.1983. The Petitioner submitted: “Under the Wealth Tax Act, 1963 repealed on 1.7.2003 (“the Act, 1963”) the Respondent was bound to declare NSL and the assets owned by it. He referred to Sections 4 [particularly sub-section (1)(a)(iii) and (5)] and 14 of the Act, 1963 and the Wealth Tax Forms (old and current)”. According to Imran Khan, since the amnesty scheme conferred privileges and rights, disclosure under it was complete with respect to income earned and the asset acquired—entitling him to complete immunity from all tax consequences on account of past non-disclosure. The declaration of asset by him made in the year 2000 also reflected in statements of assets and liabilities filed before the Election Commission of Pakistan (ECP) along with his nomination papers filed for the 2002 general elections. In Para 59 of its judgement, the Supreme Court noted as under:

“Coming back to the factum of non-declaration of the London flat and NSL, the learned counsel for the Respondent informed that the Respondent began filing his income tax returns in Pakistan in 1981. It is an admitted fact that he neither disclosed NSL nor the London flat in such income tax returns. It is the Respondent’s case that he did not disclose NSL as an asset in his tax returns for the reason that it is a juristic person of which he was not a shareholder, director or owner. He also did not disclose the London flat upon legal advice that since it was purchased with foreign income, there was no requirement to make its declaration in his income or wealth tax returns. The fact is that the Respondent purchased the London flat in 1983, two years after he became an income tax filer in Pakistan in 1981. Even if foreign earnings as non-resident were the source of funding for the London flat, yet it was an asset which he was bound to disclose in his wealth tax return under the Wealth Tax Act, 1963 after he became a filer in 1981. Therefore, the Respondent was a defaulter in relation at least to his duty under the Wealth Tax Act, 1963. This situation continued until 1.3.2000, when the Central Board of Revenue (“CBR”) announced a Tax Amnesty Scheme 2000 (“the Amnesty Scheme”)...”

The above paragraph confirms that there was default of non-payment of tax under Wealth Tax Act, 1963 by Imran Khan for 17 years and he availed tax amnesty scheme to cover it. The Supreme Court concluded: “As the sale of the London flat had been finalized before 30.06.2003, therefore for the purpose of the Respondent’s annual statement of assets and liabilities under Section 42A ROPA made as of 30.6.2003 the London flat had ceased to be his asset”.

The issue was not that of declaration of asset after its sale (which was undoubtedly not to be made) but the implication of availing tax amnesty for tax “evasion” for 17 years vis-à-vis Article 62(1)(f) of the Constitution. Can such a person still pass the test of being “sagacious, righteous and non-profligate and honest and ameen”—the expressions contained in the provision of the Constitution? The Court answered the question in the affirmative: “Declaration of the London flat in the Amnesty Scheme in 2000 followed by its disclosure in the Respondent’s wealth statement as of 30.06.2002 filed under Section 58 of the Ordinance, 1979 and reporting the same in the statement of assets and liabilities annexed by the Respondent with his nomination forms in the general election of 2002, he cannot be faulted for concealment or misdeclaration under the taxation laws of the country or the ROPA”.

The judgement in the case of Imran Khan by the highest court of the country sanctified a tax defaulter passing the test of Article 62(1)(f) of the Constitution and section 99(1)(f) of ROPA only on the plea that “he availed amnesty before filing of nomination papers”. In the Muhammad Siddique Baloch v Jehangir Khan Tareen [PLD 2016 Supreme Court 97], it was held by the same Supreme Court that a person who was untruthful or dishonest or profligate “has no place in discharging the noble task of law making and administering the affairs of State in government office”. In the case of Imran Khan, a different ratio decidendi emerged that tax avoidance and/or evasion becomes legitimate after availing amnesty and makes a person eligible to contest election and hold public office.

In any established democracy where the written constitution is supreme or otherwise, avoiding/evading tax and/or availing tax amnesty disentitles a person to take part in politics what to speak of representing people and becoming Prime Minister. Judgement in the case of Imran Khan set a precedent that in Islamic Republic of Pakistan even defrauding the State and citizens and the supreme law of the land a person can hold the highest office as President of Pakistan after the Constitution (Eighteenth Amendment) Act, 2010, [commonly called 18th Amendment] is just a ceremonial office. It was good news for tax-lax public representatives and future candidates as a new amnesty for foreign assets/incomes was on the card—publically announced by Adviser to then Prime Minister on Finance, Revenue and Economic Affairs, Miftah Ismail. They could avail and avoid disqualification in 2018 elections.

In the 2018 Amnesty, issued just a few months before the end of tenure of PLM-N, “confidentiality” was assured by the National Assembly. In other words, the voters were deprived of not even knowing who availed it! This was in utter violation of fundamental right granted under Article 19A of the Constitution, which says: Every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law.

Elaborating the above right, the Supreme Court of Pakistan in the Watan Party & Others v Federation of Pakistan & Other PLD 2012 Supreme Court 292, held:

“Article 19A has thus, enabled every citizen to become independent of power centres which, heretofore, have been in the control of information on matters of public importance….. Article 19A is a grant of the Constitution and, therefore, cannot be altered or abridged by a law enacted by Parliament…It, therefore, not for this Court to deny to the citizens their guaranteed fundamental right under Article 19A by limiting or trivializing the scope of such right through an elitist construction whereby information remains the preserve of those who exercise state power.”

[underlined and bold for emphasis]

The Supreme Court that condoned the crime of tax evasion by Imran Khan earlier in the Muhammad Jamil v. Munawar Khan and others PLD 2006 SC 24, Khaleefa Muhammad Munawar Butt and another v. Hafiz Muhammad Jamil Nasir and others 2008 SCMR 504 and Muhammad Ahmad Chatta v. Iftikhar Ahmad Cheema and others 2016 SCMR 763) justified disqualification for false declaration even if a delinquent person offers a perfect, legally acceptable explanation for the source of funds for acquiring the undeclared assets. In the Rai Hassan Nawaz v Haji Muhammad Ayub & others [2017 PLD 70 SC], the Supreme Court held:

“Where assets, liabilities, earnings and income of an elected or contesting candidate are camouflaged or concealed by resort to different legal devices including benami, trustee, nominee, etc. arrangements for constituting holders of title, it would be appropriate for a learned Election Tribunal to probe whether the beneficial interest in such assets or income resides in the elected or contesting candidate in order to ascertain if his false or incorrect statement of declaration under Section 12(2) of the ROPA is intentional or otherwise.”

The ever-growing informal economy, which is ironically called ‘The Secret Strength of Pakistan’s Economy’, has grown to the extent that tax gap is now over 100%. The real tax-to-GDP ratio if we take into account the monstrous size of unreported (untaxed) economy will be much less than claimed. Tax collection by Federal Board of Revenue (FBR), after blocking refunds and taking advances of billons of rupees, is not enough to bridge the fiscal gap that last year was over 8% of GDP.

The cumulative size of informal (untaxed) economy is around Rs. 50 trillion. If flat rate of 10% is offered to all those who have failed to pay income tax in the past, in just one year collection can reach Rs. 5 trillion. This will help enhancing income tax alone to Rs. 6 trillion in future as every person would be on tax roll.

In view of the huge size of untaxed economy, a paradigm shift in policy is needed to replace the entire taxation system for fiscal stabilization. The equation is simple. The federal government needs at least Rs 8 trillion of revenue (for meeting all development and non-development expenditure), for which determination of a fair tax base is imperative. The current complex system only favours a few thousand officers and their staff along with people having money power and who can blatantly flout the law. A simple flat rate tax that is neither burdensome nor difficult to implement is the solution but it would deprive the bureaucracy and some vested-interests of illegal enrichment. Nonetheless, the government of PTI has no option but to dismantle the existing, outdated and anti-growth tax system if it is serious to overcome the twin malaises of fiscal deficit and debt burden.

(To be continued)

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS))

Copyright Business Recorder, 2021

Dr Ikramul Haq

The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS) as well as member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached at [email protected]

Huzaima Bukhari

The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS), member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). She can be reached at [email protected]


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