0
THE law of income tax, having its roots in remote English history, dating back to the area of King Richard of England, was employed in British India regularly in 1918, 1919, 1920 and 1921 as an annual charge to meet the post World War I (1914-1918) financial repercussions and exigencies.
It was eventually enacted as a permanent tax in the year 1922, under the nomenclature of ‘Income Tax Act 1922’. After enforcement of this tax-law the necessity of crating a Central Board of Revenue to control, regulate and administer all the federal direct and indirect taxes expeditiously was felt and accordingly the board was enacted in the year 1924. The Income Tax Act, 1922, though on the pattern of English income tax law, was structured and drafted to meet and cater to the economic conditions and requirements of imperial India.
This Act of 1922, was once again overhauled and substantially amended and modified in the year 1939, at the outbreak of World War II (1939-1945), to meet the economic exigencies of the world war.
Since its area of operation was intended to be enlarged, both horizontally and vertically, complete satisfaction of tax-payer’s desire to bear the burden of tax strictly according to, and in conformity with, the requirements of law was intended to be ensured firstly by curtailing the discretion of tax-gatherer and secondly by providing more forums of appeal, mainly by creating income tax appellate tribunal, on the pattern of high courts, administratively under the supervision of the ministry of law, and manned by entirely independent and impartial personnel, adequately skilled in ‘law and accountancy’ both, recruited from outside the income tax department.
At the time of independence of India, this piece of legislature was adopted both by India and Pakistan. India, having inherited the entire established state-machinery of British India, was obliged to reframe its own income tax act in the year 1961, which in spite of maintaining the entire structure, charge and application of the old law, was redrafted for the sake of clarity, vividity and simplicity in addition to bringing the procedural provisions in keeping with the requirements of free India.
In Pakistan, suffering from the pangs of its birth, and consisting of under-developed portions of British Indian territory, the burden of the old Act with all patchwork, was borne upto the year 1979, when, pressed hard by a broad-based agitation of powerful tax non-compliant business community, against the corrupt tax administration, the government was constrained to repeal the old law and promulgate it under the new name and title of the Income Tax Ordinance, 1979.
The salient feature of this new tax law was to convert ‘self-assessment scheme’ from administrative level to statutory forum, to provide an opportunity to tax-payer for voluntary compliance.
This aspect reduced the work-load of the department, on the one hand, and provided succour to the taxpayer to determine his own tax burden himself, on the other.
With these salient features of the administration of income tax, this Ordinance of 1979 having witnessed and borne vicissitudes of policies and programmes of civil and military governments, from time to time, and inter-action of tax-collectors and business community, in particular, and a regular game of ‘hide and seek’ having remained played amongst them, has travelled all the way to-date.
The greatest virtue and merit of law of income tax being its potential of absorbing appropriate changes from year to year, commensurate to economic developments, this Ordinance, overwhelmed by presumptive and withholding taxes regime, in 1990, on the one hand, and inapt extension of the self-assessment scheme to the private corporate sector, in 1999 and to the public corporate sector in 2001, on the other, has survived and been closely familiarised to both, the taxpayer and the tax-collector alike.
Tax-culture having never grown in this country, general survey and eventual documentation of the economy, courageously conducted for the first time by the military government, has stirred the entire informal and tax evasive segment of the economy.
Smuggling, hoarding, black-marketing and profiteering, all enemies of tax-culture, had joined hands to fail the survey vehemently and had it not been for the perseverance of the finance minister, the survey would have failed, as usual, to attain the success whatever it has been able to achieve.
Under these circumstances there appears to be no pressing need or justification for repealing the existing Ordinance and frame and draft an altogether new one in its place, as none of the following four concerned groups of the people would be benefit by this exercise:
(a) the individuals who comprise the legislature;
(b) the persons whose duty is to administrate the law;
(c) members of that section of the society, who are to be regulated by law and have to bear the burden of tax, mainly those deriving income from business, professions and vocations, and lastly;
(d) members of the judiciary who have the final duty of interpreting the law, that is the income tax appellate tribunal and the superior courts.
Keeping this background of the development of income tax in Pakistan, it would be advantageous to discuss the efficacy of fundamental principles proclaimed to have been followed in drafting the new Income Tax Ordinance, one by one:
(a) Plain English: (i) it is wishful thinking to draft, as claimed, a comprehensive and exhaustive tax law of universal application and intricate nature in plain or simple foreign language. Income Tax charged on and with reference to, ‘income’ has by its very nature, to be as general as well as sophisticated as the ‘Income’ itself expanding in its dimensions with every passing day. The law of income tax has to be drafted in a language and in such a manner that no fraction of income may escape its intended charge and application.
Moreover unlike other civil and criminal statutes, every word, letter and punctuation of the tax law, which is enacted to create monetary liabilities of the citizens, is subject to close scrutiny and interpretation of both the tax-gatherer and taxpayer, both diametrically opposed to each other in their approach and interest - the one keen to collect as much as he can and the other to pay as less as he can pay. It is, therefore, impossible to avoid legal ease in drafting tax-laws. Moreover English is not the mother tongue of Pakistanis.
Even URDU, in spite of being the national language is not the mother-tongue of the vast majority of the people of Pakistan. Even an educated person can not understand the simple language employed in civil and criminal law.
(ii) like-wise each sub-section cannot be reduced to a short sentence containing a single idea. However a greater break-down of law in terms of chapters, parts and divisions is attempted in the new Ordinance:
As regards ‘provisio’, it is well established now that, its use should be kept within some reasonable bounds, for it cannot be dispensed with altogether. In the new Ordinance also on a random turning of pages it is observed that in SECOND SCHEDULE - PART-I, clause 59, ‘provisio’ is used twice in succession and followed by ‘explanation’. In clause 60, it is used once, though both the clauses are short enough.
Like-wise greater use of paragraphing within sub-section, as done in the new Ordinance, is an approach more sound as compared to using long compound and complex sentences making comprehension of text cumbersome.
There can be no two opinions about the existence of consistency in language used in the text of the Statute. All these aspects are more or less available in both the existing and the new ordinance.
It appears that the draftsman of the new ordinance intends to bring a change merely for the sake of change and to add to the list of ‘reasons’ why the existing Ordinance be repealed and new Ordinance be promulgated. Indeed on critical study of the existing and new subject matter of change, it would be irresistible to conclude that the change is for the worse and would make the confusion worse confounded, instead of yielding any improvement. Let us discuss the changes one by one:
“Tax year means the tax year as defined in Sub-Section (I) of Section 74 and in relation to a person includes a special year or a transitional year that the person is permitted to use under Section 74”.
In spite of it being undesirable to leave ‘definition’ of any term inconclusive in definition itself, as profusely done in the new Ordinance, we are forced to reproduce the provisions of Section 74(1) to read them in conjunction together to understand the meaning of term tax year intended by the legislature.
Section 74(1) reads: “For the purpose of this ordinance and subject to this section the tax year shall be the period of twelve months ending on the 30th day of June (referred to in this section as the financial year)”.
It is relevant to mention that no definition of income year formerly used as previous year in Income Tax Act, 1922 is given in the new Ordinance, as perhaps according to the draftsman it is inclusive in the very definition of the term tax year. However in contradiction to this vague and blurred definition of the term tax year, the existing Ordinance has defined both the terms income year and assessment year, inter-woven within themselves, as under:
Section 2(8): Assessment year means the period of twelve months beginning on the first day of July next following the income year and includes any such period which is deemed under any provision of this ordinance to be the assessment year in respect of any income for any income year.
The term ‘income year’ is defined as under:
Section 2(25A): Income year In relation to any assessment year (hereinafter in this clause referred to as the said assessment year) means (a) the financial year next preceding the said assessment year.
On comparative study of the said terms, it is obvious that the law of income tax, being an annual tax on annual income, in view of its very nature and charge, revolves around two years
(i) income year and
(ii) assessment year, simultaneously under compulsion of circumstances, for tax cannot simply be imposed, charged and quantified without reference to the definite and certain corresponding period during which income has accrued.
The basic concept is that if there is an income year there is an assessment year and vice-versa. Thus for the purposes of charge of income tax both the years, corresponding to each other, must exist.
This basic concept is most vividly and lucidly reflected in the definition of both the terms provided in the existing Ordinance. These basic concepts are endowed with rich and voluminous case-law spreading over a period of about a century. As against that the use of the term ‘tax year’ appears to be the burlesque imitation of the basic concept. The very change is misconceived and the product of a curious mind. Let the existing terms be used and rehabilitated.
TAXPAYER: This term appears to have been used in place of assessee. The word is very crude and identifies the assessee in a state of anguish and acrimony. The word tax is detested from its very inception, more particularly in developing societies, where it is still regarded as robbery, pure and simple, or in any case, and at best, a legalised robbery, as against those developed, advance and enlightened societies, where it is in the process of being recognized as the price of civilization. In a society like Pakistan, let the respectable ‘assessee’ be not confronted with the despised term of being a ‘tax payer’ all the time. The term tax payer is defined as:
Section 2(66): Tax payer means any person who derives an amount chargeable to tax under this Ordinance and includes: (a) any representative of a person who derives an amount chargeable to tax under this Ordinance (b) any person who is required to deduct or collect tax under Part V of Chapter X or (c) any person required to furnish a return of income or pay tax under this Ordinance.
The term ‘assessee’ is not accordingly defined in the new Ordinance. As against that the term ‘assessee’ is defined in existing Ordinance:
Section 2(8): ‘Assessee’ means a person by whom any tax or any other sum of money is payable under this Ordinance and includes:
(a) any person in respect of whom any proceeding under this Ordinance has been taken for the assessment of his income or the income of any other person in respect of which he is assessable or of the amount of refund due to him or to such other person
(b) every person who is required to file a return of income under Section 55, 72 and 81 and
(c) every person who is deemed to be an assessee in default, under any provision of this Ordinance.
On comparative study of the two definitions, it may be observed that, save to the extent of changing a few words here and there, there is no substantial amendment in the existing provision. The change in the existing well established and time-honoured terms loaded with rich and voluminous case-law is thus an exercise in futility. On the other hand it would be unnecessarily painful to change old habits and knowledge, for nothing, rather for the worse.
Taxable income: this term appears to have been used in place of total income. It is defined in Section 2(64) as follows:
Taxable income means taxable income as defined in Section 9 In keeping with the undesirable practice of using two or more sections for defining one provision of law, the draftsman again drags the reader to the provisions of another Section 9 reading as follows:
Taxable income: The taxable income of a person
For a tax year shall be the total income of a person for a year reduced but not below zero by the total of any deductible allowances under part IX of this chapter of the person for the year.
Not content with this the draftsman carries the reader further to another far-fledged Part-IX of this Chapter III, which consist of one Section 60, and sub-sections 1,2, and 3 Sub-section (1) makes further reference to the provisions of Zakat and Usher Ordinance, 1980, Sub-Section 2 makes further reference to another sub-section (2) of Section 40, whereas sub-section 3 provides for limitation of refund, carry forward or backward, to a subsequent or preceding tax-year. It was perhaps confronted with considering and trying to interpret and resolve a similar provision of law of income tax that Lord Buckmaster, in Great Western Railway v/s Bater: S TC 231,244(111) was obliged to observe:
“I do not pretend that the opinion I hold rests on any logical foundation. Logic is out of place in these questions and the embarrassment that I feel is increased with the knowledge that my views are not shared by other members of the house but this fact is not surprising. It is not easy to penetrate the tangled confusion of these acts of Parliament, and though we have entered the labyrinth together, we have unfortunately found exit by different paths”.........
As against that the total income is defined in Section 2(44) of the existing Ordinance. It reads:
Total income means the total income referred to in Section 11 computed in the manner laid down in this Ordinance, and include any income which under any provision of this Ordinance is to be included in the total income of the assessee.
The old concept of total income of any person from all sources and at all places to be combined and clubbed together for the purposes of taxation is loosening from the year 1990, since when the withholding and presumptive tax regime is being profusely used for taxation of different chunks of income separately. Yet the concept of ‘total income’ be maintained till the philosophy of progressive taxation, on the basis of ‘ability of pay’, holds the field.
On comparative study of the two aforesaid provisions of law, it would be observed that there has been no substantial change for the better save to the extend of better composition and more elaborate exposure of the provisions of law.
