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EDITORIAL: It's quite the season for innovation in Islamabad as the government does all sorts of somersaults to get more and more money out of people's pockets and into the FBR's (Federal Board of Revenue's) books. The latest smart idea is imposing a one-rupee service charge on every invoice to raise money to finance a prize scheme in which prizes would be awarded through a lottery. The finance minister had announced the institution of such a prize scheme in his budget to lure people to shop at Tier-1 retailers as receipt issued by the retailer would serve as the ticket to a prize lottery to be instituted by the FBR. This is not a novel idea as such schemes have been successfully employed by various countries like Turkey, South Korea and others to maximize revenue collection.

The incumbent finance minister, Shaukat Tarin, too, used a prize scheme when he was president of Habib Bank to mop up rupee liquidity created as a result of freezing of foreign currency accounts by the government of Pakistan in the wake of nuclear tests conducted in response to Indian tests in 1998. The scheme was so successful that all other major banks subsequently followed suit with their own prize scheme more or less on similar pattern.

Ultimately, these schemes had to be terminated when the Islamic Ideology Council (IIC) deemed them un-Islamic as they involved an element of chance like gambling. So we hope that this time Shaukat Tarin has run his plans by the IIC well in advance and obtained its blessings.

In our view, however, the introduction of the rupee one charge to finance the cost of the scheme and spare the federal budget of incurring this expenditure, has muddied the waters for the consent of the IIC as the one rupee service charge would de facto represent the cost of obtaining the receipt that would serve as the ticket for the prize lottery. This rupee would be lost if the ticket does not win a prize in the lottery. It is on this ground that the IIC in its ruling has held all lotteries as gambling and not permissible under Islam.

Furthermore, there are issues regarding the legality of the rupee one service charge that the Federal Board of Revenue (FBR) contends it has the power to impose under section 76 of the Sales Tax Act and has issued SRO 1006(1)/2021 dated 9th August 2021 to give effect to this service charge. It is hoped that prior to issuing this SRO, the FBR did consult the law division on whether the federal government can, under entry 49 of the federal legislative list of the constitution, that pertains to its power to impose "taxes on the sales and purchase of goods imported, exported, produced, manufactured or consumed [except sales tax on services] impose a service charge; particularly when the honourable Supreme Court of Pakistan, has held the levy of such service charge through the Customs Act in the SGS/Cotecna case as ultra vires of the constitution and therefore unlawful and illegal.

Another question that begs an answer is what service is being provided by whom and to whom for which rupee one is being charged, even if it is assumed that there is an element of service involved (invisible to most) then who is providing it. Since the FBR contends that it has the power to levy a service charge under the Sales Tax Act then what is the nature of the service that the FBR is providing and is it being provided to the retailer or to the consumer. If it is to the retailer, then why should the consumer pay for it? And, if the retailer and not the FBR, is providing service to the consumer then how can FBR impose the charge? And, if that is the case then the provinces have the right to tax this service.

The fact of the matter is that there is no element of service involved, at least not prima facie, and this is a mere ploy to finance the cost of the prize scheme as admitted by the FBR in its press release. It is patently clear that this measure is likely to be challenged in the courts and FBR will have to defend it. It will have to establish that this service charge is distinct from the service charge imposed under the Customs Act in the SGS/Cotecna case, although that measure too was meant to serve the cause of maximizing the government's revenue as the instant scheme.

Copyright Business Recorder, 2021

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