The Implementation Commission on the 18th Amendment has directed the Federal Board of Revenue (FBR) to review all existing tax laws and synchronise them with the relevant passages of the amendment.
The Implementation Commission, as per the amendment, was to be constituted within 15 days of the commencement of the Constitution (18th Amendment) Act, 2010 and the amendment, it must be recalled, was unanimously passed by the National Assembly on April 8, 2010, by the Senate on 15th April 2010 and signed by President Asif Ali Zardari on April 19, 2010.
The clauses of the amendment, therefore, have been available on the website for over a year and it defies comprehension as to why the FBR has failed to take appropriate measures to review the tax laws with the objective of making them consonant with the amendment till now.
Given that the FBR has only now directed its relevant department to implement the directives of the Commission and to prepare a report on any issues relating to the implementation to be sent to its Legal Wing for onward submission to the Commission is therefore inexplicable.
The 18th Amendment notes the substitution of a new article, for Article 270 AA, which includes the following: "(7) Notwithstanding anything contained in the Constitution, all taxes and fees levied under any law in force immediately before the commencement of the Constitution (18th Amendment) Act, 2010, shall continue to be levied until they are varied or abolished by an Act of the appropriate legislature; and (8) On the omission of the Concurrent Legislative List, the process of devolution of the matters mentioned in the said List to the provinces shall be completed by the thirtieth day of June, two thousand and eleven". The former has been adhered to by and large, while the latter has run into some complications because of lack of capacity in the provincial governments.
The one relevant amended passage of the amendment relating to taxation proposals is contained in Part VI of the Constitution titled Finance, Property, Contracts and Suits. It notes that "the net proceeds of the federal duty of excise on oil levied at wellhead and collected by the Federal Government shall not form part of the Federal Consolidated Fund and shall be paid to the province in which the wellhead of oil is situated."
In addition, the Fourth Schedule has been amended. Thus the federal government lost capital value tax as a source of revenue subsequent to the 18th Amendment and from realising 4,400 million rupees as revenue from this source in the revised budget estimates of 2010-11, the federal government expects to get nothing in 2011-12. This would, without doubt, place an additional burden on the federal government to either raise taxes on the already taxed and/or slash development expenditure in a bid to contain the budget deficit to sustainable levels.
However, after the 18th Amendment, the parliament can empower the federal government to levy capital gains tax on immovable property as per a recent ruling issued by Law Division to the FBR. Analysts, however, maintain that the 18th Amendment provided a tremendous opportunity to politicians to make appropriate amendments to the tax structure of the country that is riddled with anomalies as well as inequities - an opportunity that, needless to add, was not seized by the politicians of all political parties. The exception was the MQM with respect to taxing the income of the rich landlords. However, it was overruled by the other parties that included the PPP and the PML (N).
Thus farm income remains a provincial subject, as does sales tax on services. This, in effect, implies that the FBR, itself accused of massive corruption, but possessing considerably greater capacity than its provincial counterparts, would be unable to achieve the consolidated revenue targets for the year yet again.
There is an urgent need for the government to turn its attention towards reforming the country's tax structure. In spite of numerous studies and recommendations, including financial assistance for projects sponsored by the international financial institutions designed to render the tax system more equitable as well as less corrupt, the country has not witnessed any appreciable rise in the FBR performance. To add insult to injury, the latest revelation that the FBR gave gross as opposed to net revenue figures that is likely to play havoc with the budget deficit target for the ongoing fiscal year, has made matters only worse.
It is critical for the FBR to put its own house in order and for the country's politicians to come together on a common platform to ensure a consensus on devising an equitable tax system. That is no longer an option and, if the statements of our donors are anything to go by, a condition for the disbursement of aid pledges.