Peshawar High Court (PHC) has declared that 19.5 percent sales tax on internet/email/data services under the Khyber Pakhtunkhwa Finance Act 2013 is intra-vires and the said sales tax is not discriminatory, unreasonable or disproportionate. According to a latest judgment of PHC, the court has dismissed a writ petition number 2963/2014 filed by a telecom company. The PHC has further declared that KP Provincial Assembly had the legal mandate to legislate and impose the levy of sales tax on internet services.
The PHC has held that in view of the legal discourse, it would be safe to state that the 19.5 percent tax on internet/email/data services as per serial No 4, schedule II of the Finance Act, 2013 is intra-vires. Secondly, 19.5 percent tax on internet/email/data services as per serial No 4, schedule II of the Finance Act, 2013 is not discriminatory, unreasonable or disproportionate.
In order to test the constitutionality of a fiscal statute, the following principles may be of guidance and be considered by the courts: There is always a presumption in favour of constitutionality of a law made by Parliament or a state legislature. No enactment can be struck down by just saying that it is arbitrary or unreasonable or irrational but some constitutional infirmity has to be found.
Hardship is not relevant in pronouncing on the constitutional validity of a fiscal stature and in the field of taxation, the legislature enjoys greater latitude for classification. The PHC said that said fiscal statute cannot be struck down merely on the basis of it being harsh, or causing hardship or disadvantageous to the assessee, unless it is declared confiscatory. A fiscal statute cannot be struck down solely on the ground that the rate of tax levied is unreasonably high.
Any interpretation of a law, which is in conflict of the spirit of the Constitution is to be avoided and the one in support thereof is to be applied and provincial autonomy is ingrained in the Constitution and is to be upheld, PHC maintained. Accordingly, for the reasons rendered hereinabove, this Court is of the concerted opinion that the instant petition is bereft of legal merit and is thus dismissed. The order dated 25.11.2014 is hereby recalled, and the amount so deposited in the designated Account of Registrar of this Court be transferred to the Account of Director General, Khyber Pakhtunkhwa Revenue Authority, Peshawar.
Background of the case revealed that as per petition telecom company has engaged in, inter alia, providing internet services in Pakistan, is aggrieved of imposition of the sales tax at the rate of 19.5% upon internet services through the Khyber Pakhtunkhwa Finance Act, 2013 (Act); that the respondents (government of KPK, Secretary Finance KPK, KPRA and Provincial Assembly of KPK) could not redress the grievance of the petitioner despite many meetings; and that the tax imposed by the respondents is illegal, discriminatory and arbitrary, the petitioner company said.
The PHC stated that Constitution envisages Pakistan to be a Federation, with four federating units, the four provinces. The Federation and each of its unit have a separate legislative body. The mandate of the federal and the provincial legislature has also been clearly defined under the enabling provisions of the Constitution, and in particular Article 142.
The subject-matters on which the federal legislature can legislate have been clearly provided in the Federal Legislative List, appended as Fourth Schedule to the Constitution. While the subject-matters not listed therein falls within the legislative domain of the provincial legislature to legislate thereon. The Constitution (Eighteenth Amendment) Act, 2010 (Eighteenth Amendment) brought in its wake provincial autonomy, vesting more authority in the provincial legislatures. In this regard, the main striking feature was the omission of Concurrent List from the Fourth Schedule of the Constitution. However, in regard to the present case, the domain of the provincial legislature to levy sale tax on services was evident from the amendment introduced in entry 49 of Federal Legislation List contained in part-I of the Fourth Schedule of the Constitution, which now reads:
"49. Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed, except sales tax on services." The legislative competence of the Khyber Pakhtunkhwa Provincial Assembly to impose sale tax on internet services is intra vires. Accordingly, the Khyber Pakhtunkhwa Provincial Assembly passed and thus enacted the Khyber Pakhtunkhwa Finance Act, 2013 (Finance Act, 2013), wherein section 19 clearly provided for levy of sale tax on services.
Now, when we review the impugned provisions of the Finance Act, 2013, it is apparent that the Khyber Pakhtunkhwa Provincial Assembly had the legal mandate to legislate and impose the levy of sale tax on internet services impugned in the instant case, the PHC said.
It seems the petitioner-company was alive to this constitutional mandate of the Khyber Pakhtunkhwa Provincial Assembly, which prompted them not to directly challenge the vires of the Finance Act of 2013, and in particular, section 19 thereof.
In essence, the challenge made by the petitioner-company is the rate of 19.5 percent so imposed and not to the very vires of the charging section 19 of the Finance Act, 2013.
The PHC said the very spirit of the Constitution envisages a federal form of government, vesting in its federating units with autonomy. This theme of provincial autonomy has now gained such high momentum, as witnessed in the 18th Amendment, whereby the Concurrent List enumerated in the Fourth Schedule of the Constitution was omitted and powers were vested in the provinces. To agree with the contention of the petitioner company would in fact be putting a clog upon the authority of the provinces, and in particular the KP Provincial Assembly, which would not be appropriate for this constitutional Court to legally endorse.
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