Tax vs fee

Published January 6, 2017
The writer is an industrial relations professional.
The writer is an industrial relations professional.

LAST November, the Supreme Court settled the issue of whether amendments relating to levies/ contributions/ payments under various labour laws could be effected through the different finance acts. In light of its judgement, which termed these amendments unlawful, what might be the impact on the existing state of labour in Pakistan?

The facts regarding the issue can be divided into three broad categories:

The first set of facts relates to Sections 2 and 4 of the Workers Welfare Fund Ordinance, 1971, which were amended by the Finance Act, 2006 and subsequently by the Finance Act, 2008. This broadened the scope of obligation on industrial establishments to contribute towards the implementation of the ordinance.

But the amendments were challenged through writ petitions in various high courts that had divergent views on the subject. The Lahore High Court had held that the levy in question was a fee and not a tax. Therefore, the amendments made by the finance acts of 2006 and 2008 to the 1971 ordinance could not have been lawfully brought through a money bill; rather, they should have been effected through the regular legislative procedure under the Constitution.


Post devolution, workers’ benefits may be restored.


This was followed by a similar judgement by the Peshawar High Court. The Sindh High Court had a different view — that the levy in question was, in fact, a tax and not a fee, so the amendments made to the ordinance by the finance acts had been lawfully carried out through a money bill.

The next set of facts show that various provisions of the Employees Old-Age Benefits Act, 1976 were amended by the Finance Act, 2008, effectively widening the scope of obligation on employers to contribute towards the Employee Old-Age Benefits Fund. These amendments were challenged through constitutional petitions before the Sindh High Court, which held that since the levy in question was a fee and not a tax, the amendment made by the finance act to the EOBA Act, 1976 could not have been lawfully brought through a money bill.

The last category shows that various provisions of the Workmen’s Compensation Act, 1923; the West Pakistan Industrial and Commercial Employment (Standing Orders) Ordinance, 1968; the Companies’ Profits (Workers’ Participation) Act, 1968; the Minimum Wages for Unskilled Workers Ordinance, 1969 and; the Employees Old-Age Benefits Act, 1976 were amended through the Finance Act, 2007.

The amendments in effect broadened the scope of obligation of employers in the respective statutes. These amendments were challenged in the Sindh High Court, which ruled that the changes sought to be made through the finance act, did not fall within the purview of Article 73 (2) of the Constitu­tion, hence the amendments could not have been lawfully brought through a money bill.

These judgements were challenged by some of the companies affected before the Supreme Court. Generally, all bills — though they may originate in either house, ie the National Assembly or the Senate — must be passed by both houses after which the bill receives the presidential assent. However there is an exception provided by the Constitution. According to Article 73 of the Constitution, money bills are to originate in the National Assembly and can be passed by it bypassing the Senate.

The key characteristics of a ‘tax’ and a ‘fee’ have been quite precisely defined in a judgement of the Supreme Court in 1992, as follows; “The distinction between ‘tax’ and ‘fee’ lies primarily in the fact that a tax is levied as a part of common burden while a fee is paid for a special benefit or privilege”.

Each of the seven amendments in labour laws sought to be made by various finance acts of 2006, 2007 and 2008, respectively, have been discussed separately in the Supreme Court judgement and considered as a fee and not a tax. Although these amendments related to contributions and payments, not everything that pertains to finance would necessarily be related to tax. The court has held that since the amendments relating to the subject of “contributions/ payments do not fall within the parameters of Article 73 (2) of the Constitution, the impugned amendments in the respective finance acts are declared to be unlawful and ultra vires of the Constitution”.

In view of the Supreme Court judgement, the possibility of employers instituting petitions before courts claiming arrears of contributions/ payments made in excess cannot be ruled out. It also provides opportunity to provincial governments to restore to the workers benefits lost on account of judgement dated Feb 26, 2011 of the Sindh High Court, by following the correct legislative process. In this respect, the federal government will also be required to transfer funds generated under the Companies Profits (Workers’ Participation) Fund Act, and the Workers’ Welfare Fund Ordinance, to the respective provincial governments, as per devolution principles.

The writer is an industrial relations professional.

Published in Dawn, January 6th, 2017

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