Punishing non-filers!

Collection of tax where it is NOT due is as detestable as its non-collection where it is due - Justice Nasim Sikander re CIT Companies, Lahore v State Cement of Corporation (Pvt) Ltd, Lahore 2002 PTD 1603
The amendment made in the Income Tax Ordinance, 2001, through the Finance Act 2018, barring the non-filers, residents as well as non-residents, to buy immovable property exceeding Rs 5 million, is not only anti-business but also unconstitutional. The National Assembly adopted the Finance Bill, 2018 as a rubber stamp and did not bother to check whether it could impose such a condition that is directly in violation of Articles 4, 23, 25 and 142 of the Constitution of Islamic Republic of Pakistan ("the Constitution"), Any law that violates the fundamental rights of citizens cannot be enforced even if Legislature has the power to enact the same. In the case of immovable property, the federal Legislature even lacks competence to levy any tax.
Since 2012, the imposition of capital gain tax (CGT) on immovable property is violative of item 50 of Part I, Federal Legislative List of Fourth Schedule to the Constitution. Unfortunately no action is taken by any court to strike it down. The federal government, through the Finance Act 2012, amended section 37(5) of the Income Tax Ordinance, 2001 and for the first time levied income tax on gain of immovable property. Punjab levied a similar tax in Finance Act 2013 contesting the authority of the federal government to do so. The question is that who has the right under the Constitution to levy this tax? Obviously, both the federal government and the provinces cannot use item No 50 of the federal legislative list of the Fourth Schedule to the 1973 Constitution to levy tax on gain of immovable property. The federal government can levy taxes on matters enumerated in the federal legislative list while residual matters fall in the domain of the provinces.
Prior to the amendment in item No 50 through the Eighteenth Constitutional Amendment, the National Assembly had admittedly no power to levy capital gain tax on disposal of immovable property but after this amendment, FBR says the right vests with it.
Item No 50 as exists today reads as under:
"50. Taxes on the capital value of the assets, not including taxes on immovable property"
Prior to the amendment, the language of Item No. 50 was:
"50. Taxes on the capital value of the assets, not including taxes on capital gains on immovable property"
After omission of words "capital gain" from item No 50 through the Eighteenth Constitutional Amendment Act, 2010, the federal government misunderstood the law and in the Finance Act 2012, section 37(5) of the Income Tax Ordinance, 2001 was amended to bring capital gain on immovable property in the ambit of taxation. Two new sections, 236C and 236K were also inserted in the Income Tax Ordinance, 2001, in 2012 and 2014 respectively, for collection of advance tax from the seller and buyer at the time of sale/purchase/transfer of immovable property. In 2012, the FBR was of the view that capital gain tax on disposal of immovable property would help in broadening of tax base and substantially enhance revenue-these assertions later proved wrong as both the number of filers as well as revenue from this source were substantially decreased. Now through the Finance Act, 2018, a condition is imposed that non-filers cannot purchase property worth more than Rs 5 million.
From the plain reading of item No 50, as it stands after the Eighteenth Constitutional Amendment, it is unambiguously clear that the Parliament can levy taxes on capital value of moveable assets but has no authority to levy taxes, including capital gain tax, on immovable property. The phrase "not including taxes on immovable property" cannot be read to "include taxes on capital gains on immovable property." Provinces have failed to understand that their right to tax gain on immovable property situated within their territories is undisputable and is being encroached upon by the federal government since 2012. Only the Punjab Assembly levied this tax in Finance Act 2013, but the government never bothered to enforce it.
As regards the acquisition of property, the Constitution gives inalienable fundamental right that has been violated in the Finance Act, 2018. Article 23 of the Constitution categorically says:
Every citizen shall have the right to acquire, hold and dispose of property in any part of Pakistan, subject to the Constitution and any reasonable restrictions imposed by law in the public interest.
The condition that non-filers cannot purchase property is neither reasonable nor in public interest. Why should a non-resident, not liable to tax in Pakistan or a resident having exempt or below taxable income, be forced to file a return in order to acquire property exceeding Rs 5 million? In any case, Federal Board of Revenue (FBR) gets information about purchase of such properties through withholding tax mechanism. The Commissioner can issue notice for filing of return and wealth statement if the purchaser is non-filer and paid high tax at the time of purchase. How can his fundamental right guaranteed in Article 23 be infringed?
Millions of Pakistanis, not earning taxable income, pay advance income tax. They are not required to file income tax returns/statements. Why are they being compelled to file returns and be exploited by unscrupulous officials and tax advisers! This is blatant violation of Article 4(c) of the Constitution which says: no person shall be compelled to do what the law does not require him to do. Malicious propaganda campaign, a lamentable act, against millions of Pakistanis who pay advance income tax though not liable to tax must stop. They are contributing to national kitty even though law does not require them to do so. Withholding provisions are unconstitutional in the case of those who are not earning taxable income and this matter is now before the Supreme Court.
There are about 80 million (out of a total of 95 million) persons, having below taxable income but paying advance income-tax as mobile users. They are taxpayers. How can they and non-residents be compelled to file returns just to buy immovable property exceeding Rs 5 million? Why to hassle expatriate Pakistanis to become filers when they have no taxable income in Pakistan. Instead of admitting its failure to enforce provisions relating to filing of returns by people having taxable income, FBR has opted to penalise those having no taxable income and public at large through onerous, obnoxious, enormous and cumbersome withholding tax provisions and by infringing their fundamental rights of acquiring, holding and disposing property in any part of Pakistan.
(The writers, lawyers and partners in HUZAIMA IKRAM & IJAZ, are Adjunct Faculty at Lahore University of Management Sciences)