Tax Laws (Amendment) Ordinance, 2025: Ill-advised, confiscatory & undemocratic

The President of Pakistan issued Tax Laws (Amendment) Ordinance, 2025, published in The Gazette of Pakistan on May 2, 2025, made effective at once. Presidential Ordinance No. IV of 2025 [“the Ordinance”], amending Income Tax Ordinance, 2001 (XLIX of 2001) and Federal Excise Act, 2005, not only bypasses parliamentary procedure, but also flagrantly undermines the constitutional framework governing taxation, particularly infringing inviolable fundamental rights guaranteed under Articles 4, 10A, 18 and 25 of the Constitution of the Islamic Republic of Pakistan [‘the Constitution”].

The Ordinance, promulgated under Article 89(1) of the Constitution, arms tax authorities with unfettered and unbridled powers of immediate recovery of income tax dues, and surveillance without affording due process—a manifest affront to the democratic and legal ethos of the country.

The amendments made in section 138 and section 140 of the Income Tax Ordinance, 2001, through the Ordinance, empower the Federal Board of Revenue (FBR) to recover income tax liabilities “immediately”! These cover amounts “payable under any provision or any assessment order” following any decision on the same issue by the High Court or Supreme Court, regardless of statutory timelines available to the taxpayer or the existence of ongoing appeals or right to file further appeal/review, if available. The newly inserted sub-section (3A) in section 138 and sub-section (6A) in section 140 of the Income Tax Ordinance, 2001 having identical language read:

“Notwithstanding anything contained in this Ordinance or any other law or any rule, any decision or judgment of any court, forum or authority, the tax payable under any provision of this Ordinance or any assessment order shall become immediately payable or within the time specified in the notice issued by the income tax authority under this sub-section, irrespective of the time provided under any other provision or the said decision or judgment, in case the issue giving rise to the tax payable is decided by a High Court or Supreme Court of Pakistan”.

The above provision brazenly violates Article 10A of the Constitution, which enshrines the right to fair trial and due process. It reads: “For the determination of his civil rights and obligations or in any criminal charge against him, a person shall be entitled to a fair trial and due process”. Insertion of such a coercive provision without procedural safeguards disenfranchises taxpayers from their constitutional rights and reduces the appellate process to nullity. How can a person be deprived of applying for suspension of order of a High Court before Supreme Court in the stipulated time. The order of High Court is binding under Article 201, subject to Article 189 of the Constitution that is after final adjudication by the Supreme Court. Even the order of a Supreme Court can be further assailed, if so warranted under right of review conferred by Article 188 of the Constitution. Hence, “immediate” recovery before finality after exhaustion of all forums is in violation of supreme law of the land.

Introduction of “immediate” recovery provisions following a decision of the High Court is constitutionally questionable, not only because it undermines the judicial review process but also because it introduces asymmetry in enforcement. If the state intends to recover liabilities immediately after an unfavorable ruling for a taxpayer, then by parity of reasoning, the state must be legally mandated to issue refunds immediately after the assessment order or upon an appellate victory for the taxpayer.

Tax laws must operate symmetrically; benefits and burdens must be balanced, not tilted in favour of state coercion. This one-sided enforcement prerogative defies the principles of fairness and equity ingrained in common law traditions and comparative jurisprudence. This also offends right of equality under Article 25 of the Constitution.

In case any restraining order is passed under Article 199 of the Constitution, no recovery can be made unless order is vacated or final order is passed. The overriding language of sub-section (3A) of section 138 and sub-section (6A) of section 140 of the Income Tax Ordinance, 2001 cannot take away the right of stay available under Article 199 of the Constitution. The subordinate legislation is subservient to the Constitution under which it is enacted.

Insertion of section 175C, empowering FBR to post its officers on the premises of taxpayers to monitor production, supply of goods, or provision of services, sabotages privacy, liberty, and dignity guaranteed under Article 4 of the Constitution that unequivocally states: “To enjoy the protection of law and to be treated in accordance with law is the inalienable right of every citizen wherever he may be, and of every other person for the time being within Pakistan.”

Article 4(2)(a) of the Constitution also prohibits arbitrary actions by state functionaries, stating: “No action detrimental to the life, liberty, body, reputation or property of any person shall be taken except in accordance with law”.

The draconian and confiscatory powers assigned to tax officers to act as virtual sentinels inside business premises without prior judicial oversight or clearly defined boundaries constitute an arbitrary intrusion and are certainly ultra vires the Constitution.

The tax regime must be transparent entailing constitutional and statutory clarity, predictability, and fairness qualities egregiously absent in the Ordinance. The overarching constitutional principle of “no taxation without representation” is enshrined in Article 77 of the Constitution:

“No tax shall be levied for the purposes of the Federation except by or under the authority of Act of Majlis-e-Shoora (Parliament)”.

Issuance of unstructured fiscal mandates through a Presidential Ordinance, overriding legislative deliberation and debate, is a constitutional subversion. The Supreme Court in the Messers Mustafa Impex v. Government of Pakistan (2016) 114 Tax 241 (S.C. Pak.) explicitly ruled: “Levy and exemption of tax is the function of Parliament under Article 77 of the Constitution, and... power of exemption if given to the executive per se, would amount to the negation of the doctrine of parliamentary supremacy and the doctrine of separation of powers”.

The power and practice of destructive recovery measures despite pending appellate rights is incompatible with legal norms observed in advanced jurisdictions. In the United States, under the Internal Revenue Code (26 U.S. Code § 6404 and § 7811), taxpayers are shielded from enforced collections during pendency of appeals, and IRS has to refund amounts within 45 days upon favourable resolution.

In Germany, tax recovery is stayed as a matter of right if an appeal is filed, and no collection occurs until the Finanzgericht (Tax Court) renders a decision. Similarly, in the United Kingdom, His Majesty’s Revenue and Customs (HMRC) adheres to procedural fairness, offering taxpayers the statutory right to a review before any enforcement.

In Estonia, New Zealand, and Switzerland, usually ranked among the top five jurisdictions in the Tax Competitiveness Index, tax authorities are required by law to halt collections when a matter is sub judice. These countries emphasize transparency, equity, and negotiation with the taxpayer, contrary to Pakistan’s authoritarian tax enforcement model.

The bullying posturing embedded in the Ordinance is antithetical to global best practices, which prioritize dispute resolution, voluntary compliance, and minimal friction in tax administration. The World Bank’s “Paying Taxes Report” and the ‘OECD’s Tax Administration Comparative Information Series’ underline those countries ranked highest in tax performance, like New Zealand, Estonia, Denmark, Singapore, and Switzerland, because they create enabling environments for taxpayers. These nations deploy taxpayer charters, use integrated digital platforms, and provide structured timelines for refunds and redress, fostering mutual trust between tax authority and the citizen. None of these jurisdictions allows revenue authorities to override judicial decisions or enforce collection while appeals are in progress.

The intrusion envisaged under section 175C of the Income Tax Ordinance. 2001 further compounds the problem. Posting revenue officers on taxpayer premises, without judicial warrant or structured oversight, is unprecedented in democratic economies. No comparable power exists in the U.S. Internal Revenue Code, or under the Canadian Income Tax Act, or in the tax codes of Germany, France, or the Netherlands. Even in high-surveillance jurisdictions like South Korea or Japan, on-site monitoring is conducted only under judicial warrants and under strictly regulated timelines.

Pakistan’s new tax recovery and monitoring model under the Ordinance is bound to encourage harassment, opens floodgates to more corruption, and turns the revenue machinery into an inquisitorial regime rather than a service-oriented institution.

The Ordinance also amends sections 26 and 27 of the Federal Excise Act, 2005, granting FBR the authority to designate officials from federal or provincial governments to exercise Inland Revenue powers for counterfeiting and compliance enforcement. This further blurs the lines of institutional accountability, bypassing regular tax officers and inviting jurisdictional chaos. The constitutional framework does not support a blanket transfer of core enforcement powers to non-specialized executive staff. The principle of specialized tax administration recognized globally, stems from the understanding that tax enforcement must be lawful, proportional, and predictable, not discretionary or opaque.

The economic consequences of these provisions are equally devastating. The trust deficit between the business community and the tax machinery will widen exponentially. Businesses, both domestic and foreign, flourish in environments where tax laws are fair, stable, transparent, and devoid of retroactive or coercive enforcement. This Ordinance will certainly dissuade investment. It violates fundamental rights envisaged for procedural justice, discouraging new entrants and pushing existing players into informal or offshore domains.

The case for foreign direct investment (FDI) hinges not merely on tax rates but on the perception of legal stability and investor protection. Pakistan’s global ranking in the World Bank’s “Ease of Doing Business” has already suffered due to tax-related grievances; this Ordinance is likely to exacerbate the decline.

The Ordinance also ignores a basic jurisprudential principle: lex non cogit ad impossibilia, the law does not compel the impossible. Immediate payment of massive assessments without exhaustion of appellate remedies or resolution of legal ambiguities places an undue and often impossible burden on the taxpayer. The law must not be an instrument of punishment but a framework of predictable governance.

What a tragedy that instead of building taxpayer trust and expanding the tax base through engagement and reform, the incumbent government, through an ill-advised Ordinance, has weaponized enforcement to further alienate the citizenry. If recovery is to be made immediately after any decision of High Court and Supreme Court on any issue, then refunds too must be paid with equal urgency in case of unfavourable decision—anything less is not governance, it is legalized (sic) coercion. Hopefully, the National Assembly will consider these points and knock down the unconstitutional Ordinance [laid before it as a Bill under Article 73(2)] in the next session through a simple resolution as envisaged in Article 89(2)(a)(i) of the Constitution.

Copyright Business Recorder, 2025