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ISLAMABAD, June 19: The Supreme Court appeared to be unconvinced by an assurance given by the federal government on Wednesday that one per cent increase in general sales tax (GST) rate would not apply to essential food items and medicines.

“I have contacted the finance secretary and he talked to the finance minister who has agreed in principle to issue a directive to the Federal Board of Revenue (FBR),” Attorney General Muneer A. Malik informed a three-judge bench headed by Chief Justice Iftikhar Muhammad Chaudhry which had taken notice of the recent increase in petroleum prices.

The court had asked the AG to seek instructions from the government on the GST rate increase from 16 to 17pc which, according to the court, was a proposal in the Finance Bill yet to be approved by parliament and its imposition would raise prices of essential commodities.

The AG submitted a one-page statement which said: “The FBR is directed to inform the general public by all appropriate means that the essential items as per Section 13, read with the Sixth Schedule under the Sales Tax 1990, such as vegetables, meat, milk, eggs, red chillies, fish, drugs, pulses, fruits, poultry, ginger, turmeric, cereals and products of milling industry, ice, poultry feed, butter, sugarcane, yogurt butter, infant milk preparations, salt, potato, onion, bread, naan, chapati, bun, rusk, etc, will continue to remain exempted from sales tax.

“The increase in GST rate from 16 to 17pc under the declaration issued under the Provisional Collection of Taxes Act (PCTA) 1931 does not affect any of the items which are exempted under the Sales Tax Act 1990.” The statement said the FBR had also been directed to ensure that all inland revenue officers strictly monitored that no sales tax was taken on these supplies and proper action be taken against violators.

But the court appeared to be unconvinced by the statement and asked whether the FBR enjoyed more powers than parliament.

The court hinted at examining the vires of the never tested before colonial era law (PCTA) under which the government had increased GST on petroleum products. “This practice of increasing taxes (under PCTA) should now end,” the court said, adding that even the president could not impose such a tax through an ordinance.

But the government had followed a consistent policy and that the practice relied on a high court judgment, the attorney general said, adding that any order should have a prospective, rather than a retrospective effect.

“The PCTA is also an act of parliament and was saved by all previous constitutions,” Mr Malik said, adding that the declaration issued by the government was under a delegated legislation of 1931 Act (PCTA). But the chief justice observed that the declaration of levying 17pc GST on petroleum products under the PCTA was not in consonance with the constitutional provisions. The government did not opt to follow a mechanism in the interest of the general public.

“We realise that no government can run without taxation, but its imposition and recovery should be in accordance with the constitution,” the chief justice said, adding that the matter in hand did not involve a question of enriching a business but being a state sympathy towards the public and its subjects should always be the driving force.

“If the tax has to be levied by the executive on the basis of PCTA then what is the necessity to incorporate it in the Finance Bill presented before parliament and get it approved,” the chief justice asked.

He observed that stamping of this practice by the apex court of enhancing taxes in this manner would make such declarations to become a law only to encourage extra-constitutional measures in future.

Advocate Salman Akram Raja, representing the Oil and Gas Regulatory Authority, recalled that even the apex court through a number of decisions had created a distinction between levying of taxes by parliament and fixing the rate to be collected by the executive. He argued that the rate covered and collected could be delegated to an executive authority and every statute on the recovery of taxes like sales tax, customs tax and income tax had similar provision which allowed the executive to make changes in the amount of taxes.

But the court observed that the executive could not cross the limit which the mother act had provided, meaning thereby it could reduce the amount of tax but not increase it.

The court will take up the matter on Thursday.