December 31, 2001	Monday	Shawwal 15, 1422

The Central Board of Revenue (CBR) through the newly promulgated Income Tax Ordinance, 2001, which will come into force on 1st July 2002, has made an attempt to tax the income of a number of institutions, most notably amongst them the State Bank of Pakistan.

It is an unprecedented move about which nobody is yet aware of. The move on the part of the CBR remains unnoticed. It has far reaching financial ramifications for our reserve bank, which is not supposed to be subjected to tax for its functions and responsibilities which include ensuring monetary and fiscal stability of the country. Any tax burden imposed on it will have a negative impact for our monetary, credit and fiscal policies.

Section 3 of the new Income Tax Ordinance says that : ‘the provisions of this Ordinance shall apply notwithstanding anything to the contrary contained in any other law for the time being in force’. This overriding provision will disentitle all the institutions from claiming exemption from tax available in their respective laws as no such provision is available in the Income Tax Ordinance, 1979. Section 54 of the new Ordinance further reinforces this inference. It reads as under: “54. Exemptions and tax provisions in other laws. - No provision in any other law providing for-(a) an exemption from any tax imposed under this Ordinance.(b) a reduction in the rate of tax imposed under this Ordinance.(c) a reduction in tax liability of any person under this Ordinance; or (d) an exemption from the operation of any provision of this Ordinance, shall have legal effect unless also provided for in this Ordinance”.

The new Ordinance has withdrawn exemptions and concessions available to a number of institutions, like the State Bank of Pakistan (SBP), which have not been included in any of its sections 41 to 52 or the Second Schedule read with section 53. The exemption available to SBP under section 49 of the State Bank of Pakistan Act, 1956 from the levy of income tax will become infructuous after 1st July 2002 in view of section 3 and 54 of the new Ordinance. It will be for the first time in the history of Pakistan that the central bank will be liable to pay income tax for its taxable income.

It is interesting to note that the new Ordinance has continued the exemption available to Wapda and many other charitable and public utility institutions, but has withdrawn the same facility from the SBP and a number of other state-run concerns. The criterion applied by the CBR is best known to it. If it is a policy decision to withdraw exemptions of all the autonomous state-run institutions then why WAPDA has been granted a special status. The role of the SBP to regulate the monetary and credit system of Pakistan is no less important than that of WAPDA to exploit power and water resources [though it has failed to perform this role effectively in recent years].

The State Bank of Pakistan has no less genuine case for tax exemption vis-a-vis WAPDA or many other institutions that have been provided such facility in clauses (57), (58), (59), (63) to (71) of Part I, Second Schedule to the new Ordinance. It is possible that due to some oversight the CBR has failed to consider the SBP as exempt in the new Ordinance or it may be a deliberate attempt to tax the central bank of Pakistan.

Apart from the SBP, a number of other charitable and public utility institutions will lose tax exemption with effect from 1st July 2002 as their names have not appeared in the exempt clauses of the new Ordinance, although they enjoy exemptions under their respective laws. Some of these are:

1. Women in Distress and Detention Fund Act, 1996 [section 8 grants it special exemption from taxes].

2. High Court Judges (Leave, Pension and Privileges) Order, 1978 [paragraph 22C grants exemption from tax on certain allowances and privileges].

3.The Pakistan Bait-ul Mal Fund, established under Act No1 of 1992.

4. The National Fund for Cultural Heritage Act, 1994 [section 7 gives special exemption from income tax to all contributions and donations]

These are just a few examples and the list is not exhaustive. There may be many other such institutions that are enjoying special exemptions from tax under their special laws. However the special provisions contained in their respective laws will have to yield before the overriding provisions of the new Ordinance. It is an established principle of interpretation of statutes that in case of conflict between two non-obstante provisions in two different laws, the law, which was enacted later in time, will prevail. Since the Income Tax Ordinance, 2001 is promulgated later in time; it will override all the previous laws, mentioned above.

It is disturbing to note that the CBR has extended tax exemptions to a number of institutions in the new Ordinance, but has failed to give the same treatment to the above-mentioned bodies and the State Bank of Pakistan.

The reason and logic demands that either tax exemptions from all such institutions should be withdrawn or all of them should be given the same treatment.

The method of pick and choose without any transparency is against public policy and is violative of Article 25 of the Constitution of Pakistan. It is hoped that the policy makers will review the new Income Tax Ordinance giving equal treatment to the institutions engaged in somewhat similar activities.