ISLAMABAD: The Sindh High Court (SHC) has declared a legal amendment, which had given the finance minister powers of imposing regulatory duty, unconstitutional and scrapped the duty levied on more than 356 items, putting the federal government in a tight spot.
The decision carries far-reaching implications for the federal government and reinforces the principle of ‘trichotomy of power’ that the Supreme Court of Pakistan had enshrined in its historic August 2016 judgment.
The SHC made the Supreme Court’s judgment the base for declaring the amendment to the Customs Act 1969 through the Finance Act 2017 unconstitutional.
In the August 2016 judgment, the Supreme Court had defined the federal government as the federal cabinet plus the prime minister and barred the premier or any minister from unilaterally taking decisions in fiscal matters.
Import duty on eatables, luxury items raised by up to 350pc “Section 18(3) of the Customs Act 1969 as to the extent as amended by the Finance Act 2017 is declared to be ultra vires the Constitution and of no legal effect,” read the SHC judgment.
In order to defeat the Supreme Court ruling, then finance minister Ishaq Dar had obtained these powers by inserting a clause in all the four fiscal laws. The clause stated that the board (Federal Board of Revenue), with approval of the federal minister in charge, may by notification make changes in the tax rates.
However, the SHC struck down the amendment to the Customs Act that had been challenged by the affected parties after the FBR imposed regulatory duty on more than 356 goods in order to curb growing imports.
The ruling also declared SRO 1,035 of 2017, issued in October 2017 in exercise of powers conferred by the amended Section 18(3) of the Customs Act, “ultra vires, of no legal effect and is hereby quashed”.
The decision will cause a dent in the FBR’s revenues for this fiscal year as it had estimated receipt of a minimum Rs25 billion from the regulatory duty. However, the decision will help ease inflationary expectations as the government had even targeted essential and food items to raise additional revenues.
Imported food items, tyres, vehicles, garments, etc will get cheaper as a result of the court ruling. The SHC directed the FBR to refund the duty that the petitioners paid after the issuance of the SRO. But the court suspended its judgment for 30 days in order to enable any aggrieved person or party to appeal against the verdict.
The court has upheld the principle of taxes and duties to be imposed only by parliament. “Those functions of the federal government that relate to the exercise of legislative powers cannot be conferred at all, ie, cannot be regarded as part of the designated functions,” said the judgment.
