Tax delinquents and elections
by Huzaima Bukhari & Dr. Ikramul Haq
According to reports, the FBR is coming out with an illegal, rather obnoxious interpretation, that if tax has been deducted from salary of a parliamentarian then he/she will not be considered as a tax defaulter for the forthcoming elections notwithstanding the fact that a willful default was committed by not filing income tax return and wealth statement required under the law — the purpose is to safeguard the overwhelming majority of candidates from disqualification. People want to know how our innocent members of parliament can claim that salary is their only source of income vis-à-vis their style of living — sprawling bungalows, luxury cars; army of guards and foreign travels etc.
The study (Taxation without Representation) released by the Center for Investigative Reporting in Pakistan (CIRP) on December 12, 2012 revealed that nearly 70 per cent of members of Senate and National Assembly having taxable income of Rs500,000 in tax year 2011 failed to comply with section 116(2) of the Income Tax Ordinance, 2001 by not filing tax returns, wealth statements and personal expenses. Instead of admitting their default and making it good, they accused the FBR of “illegally” (sic) disclosing data. The FBR also obliged them by not taking action under the law, rather assured them of “full cooperation in identifying the persons who leaked data”.
On discovering lapse on the part of legislators, it was the duty of the FBR to promptly issue notices under the law to all those who failed to file their tax returns with wealth statements. If 70 per cent of Pakistani legislators violated section 114 and 116 of the Income Tax Ordinance, 2001 then the FBR was equally guilty of failing to issue notices under section 114(3) and 116(1) of the Income Tax Ordinance, 2001 to these defaulters.
The act of non-filing of return and wealth statement attracts prosecution proceedings as well which are contained in section 191(1)(a) of the Income Tax Ordinance, 2001. It reads as under:
191. Prosecution for non-compliance with certain statutory obligations.
Any person who, without reasonable excuse, fails to comply with a notice under sub-section (3) of section 114 or sub-section (1) of section 116; shall commit an offence punishable on conviction with a fine or imprisonment for a term not exceeding one year, or both.
In case the default of non-filing of return and wealth statement continues even after punishment under section 191(1)(a), sub-section (2) of section 191 provides further action as under:
(2) If a person convicted of an offence under clause (a) of sub-section (1) fails, without reasonable excuse, to furnish the return of income or wealth statement to which the offence relates within the period specified by the Court, the person shall commit a further offence punishable on conviction with a fine not exceeding fifty thousand rupees or imprisonment for a term not exceeding two years, or both”.
The above provisions of the Income Tax Ordinance, 2001 are unambiguous and more than adequate to deal with tax delinquents. These have, unfortunately, not been invoked in the case of holders of public office as they represented the mighty section of society who made things worse by calling leakage of information as “breach of privilege”.
In all the leading democracies of the world, laws exist which ensure that people seeking votes to become their representatives should have integrity and character. Discharging of tax obligations is a requirement of law of the land (reproduced above) and its violation by any individual attracts provisions of Article 62(f) of the Constitution which says:
“A person shall not be qualified to be elected or chosen as a member of Majlis-e-Shoora (Parliament) unless he is sagacious, righteous and non-profligate, honest and ameen, there being no declaration to the contrary by a court of law”.
Can a violator of income tax law escape the operation of this provision of supreme law of the land even when no action is taken by the FBR against him and it is incontrovertible that he did not file income tax return and wealth statement required under the law?
It is not out of place to mention that two important nominees of Barack Obama in his first term — Tom Daschle and Nancy Killefer — withdrew their names after it emerged that they failed to keep their taxes in proper order. Let the political parties tell us if they know how many of their leaders have no problems with taxes. We, being practicing tax lawyers and having long experience as tax administrators, can say without any fear of contradiction that majority of them will be disqualified if we implement the democratic tradition followed by Barack Obama after landslide and historic victory in 2008 by admitting that he “screwed up” by nominating tax delinquents.
Our rulers, on the contrary, take pride in rewarding known corrupt and offenders by giving them important public offices. This is why our history is that of ‘Barren Years’.
The agenda of change, even from a pure moralistic point of view, must start from one’s self and own house. Those who are accusing others of tax avoidance are required to first prove that they have discharged their own liabilities diligently. There cannot be selective accountability and escape from law by using the attractive slogan of “change” or “reform” nor in their garb can anyone be allowed to rise above law by claiming himself to be a custodian (self-acclaimed) of morality.
It is a matter of record that political parties in Pakistan do not file tax returns and the FBR has never bothered to issue them notices. In India, there is a mandatory provision of law [section 13A of Income Tax Act, 1961] requiring political parties to file returns. Frequently, Chief Election Commissioner of India asks the Indian Central Board of Direct Taxes to scrutinise accounts submitted by political parties. Central Information Commission of India also directs Income Tax Department to disclose in public interest, details of donors given by political parties in their tax returns.
In Pakistan, neither Election Commission nor the FBR has bothered to consider this vital matter till today. Even the Supreme Court has not taken cognizance of this issue while passing many orders for conducting fair and free elections.
A meaningful change in electioneering requires that political parties should not only keep proper accounts and get them audited by reputed firms, but also file income tax returns, which should be made public. It would force them to take into their folds only those people who honestly discharge their tax obligations. The process of filtration within the parties is a necessary step towards a transparent and democratic setup and Election Commission of Pakistan should ensure its implementation.