The Pakistan Income Tax Ordinance 2001 is a wondrous thing. Running to 567 pages, it contains well over 300 sections, supported by nine schedules that themselves account for over 200 pages of the text and are sub-divided into numerous parts and divisions.
One of the features of the Pakistan tax system is an exceedingly large number of domestic withholding and advance taxes. Each year, the Pakistan Federal Board of Revenue (FBR) produces a useful table listing all such taxes and their rates. In its latest incarnation, this runs to 31 pages. Just three of them cover taxes applying only to non-residents without a permanent establishment in Pakistan.
One of the reasons for the prevalence of withholding and advance taxes in Pakistan is the need to compensate for the notoriously small number of residents who file tax returns in a country with a population of 193 million. According to recently released official figures, the FBR had received, as of November 1, 2017, just 608,587 returns for the last tax year. The deadline for submission was originally September 30, but at the last minute was extended to October 31. On that very day, the deadline was further extended to November 15. So there may yet be some more returns to come in.
As part of efforts to encourage more Pakistani residents to submit tax returns, the Finance Act 2014 introduced a distinction between “filers” (taxpayers whose names appear in the active taxpayers list issued by the FBR or are holders of a taxpayer's card) and “non-filers” (everybody else). In general, non-filers are subject to higher withholding and advance tax rates than filers.
One such rate can be found in Division XVIII of Part IV of the First Schedule to the 2001 Ordinance. This relates to an advance tax on the purchase or transfer of immovable property valued in excess of 4 million Pakistan rupees, collected from the purchaser or transferee at the time that the transfer is officially registered, recorded or attested (see section 236K of the 2001 Ordinance). When this tax was introduced by the 2014 Finance Act, the threshold was 3 million Pakistan rupees, and the rates were 1 percent for filers and 2 percent for non-filers. However, the legislation further provided that the non-filer rate “shall be” 1 percent until a date appointed by the FBR through notification in the official gazette. Such notification was given on January 14, 2015, specifying January 19, 2015 as the effective date. Accordingly, the non-filer rate increased to 2 percent on the latter date.
The 2015 Finance Act made no changes to the rates. Nor did it remove the proviso. But the 2016 Finance Act, which took effect on July 1, 2016, increased the rates for both filers and non-filers. The filer rate was set at 2 percent while the non-filer rate increased to 4 percent (later, the threshold was raised to 4 million Pakistan rupees). These are the rates that you will now see in the 2001 Ordinance. But lurking beneath the table of rates is the proviso originally enacted in 2014, stating, as we have seen, that the non-filer rate “shall be” 1 percent until a date appointed by the FBR through notification. So does this mean that the non-filer rate reverted to 1 percent on July 1, 2016, and that it remains so, given that the FBR has given no relevant notification since that date?
I think not. To my mind, the proviso became obsolete when the FBR notified the 2 percent non-filer rate in January 2015. For the sake of clarity, the proviso should then have been removed from the 2001 Ordinance at the first available legislative opportunity, i.e., in the 2015 Finance Act. The fact that it wasn’t cannot, however, have had the effect of reducing the non-filer rate to 1 percent on July 1, 2016. The proviso had no further role to play, and therefore fell away, once the FBR had given their notification of the 2 percent rate.
This conclusion, it should be said, is by no means obvious on the face of the statutory text. Only by unpicking the legislative history, with the aid of the excellent annotations to the 2001 Ordinance, is it possible to reach a construction that not only makes sense, but is also consistent with the clear statutory purpose of charging non-filers higher rates than filers.
By Dr Craig Rose, Technical Editor, Bloomberg BNA
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