Nature of Income Support Levy (Fee or Tax) under Income Support Levy Act 2013

Nature of Income Support Levy (Fee or Tax) under Income Support Levy Act 2013 Case Laws Constitutional Law Interpretation - Tax Law Interpretation of Statutes Knowledge - Constitutional Law Lahore High Court Litigation & Arbitration Preamble Solutions - Constitutional Law Tax Mr. Justice Shahid Karim in his judgment has decided the issue regarding nature of income support levy (fee or tax) under Income Support Levy Act 2013 in Writ Petition No. 19763 of 2013.

1. This petition under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (Constitution) invites this Court to hold upon the constitutionality of the Income Support Levy (the levy) at the rate of 0.5% on the value of net movable assets/wealth as being ultra vires the Constitution and without lawful authority. The challenge has been laid to the provisions of Income Support Levy Act, 2013 (Act, 2013) promulgated through Finance Act, 2013.

2. Some of the provisions of the Act, 2013 which will come into play and will have to be considered during the course of this opinion are reproduced as under:

“2. Definitions.- (1) In this Act, unless the context otherwise requires:

(a) “Levy” means the Income Support Levy leviable or payable under this Act;

(b) “net moveable wealth” means the amount by which the aggregate value of the moveable assets belonging to a person as declared in the wealth statement for the relevant tax year, is in excess of the aggregate value of all the liabilities owed by that person on the closing date of the tax year.

Explanation.- For the purpose of this clause:

(i) where liability claimed relates wholly and exclusively to an immovable asset, it shall not be claimed and allowed while computing the net moveable wealth. However, where the liability claimed relates wholly and exclusively to a moveable asset, it shall be claimed and allowed as a straight deduction while computing net moveable wealth; and

(ii) where the gross wealth of a person, declared in the wealth statement includes both moveable and immoveable assets and the nature of assets to which the liability relates is not determinable, the liability to be allowed while determining the net moveable wealth shall be calculated by the following formula:- (A / B) x C Where – A is the gross value of moveable assets; B is the gross value of both moveable and immoveable assts; and C is the gross value of debts owed;”

(h) “wealth statement” means a wealth statement required to be filed under section 116 of the Income Tax Ordinance, 2001.”

“3. Charge of Levy.- Subject to the provisions contained in this Act, there shall be charged for every tax year commencing on and from tax year 2013 a Levy, in respect of value of net moveable assets held by a person on the last date of the tax year at the rate specified in section 9 and in the manner specified hereunder. 4. Time and manner of payment of Levy.- A person who is liable to pay the Levy under this Act shall pay the Levy along with wealth statement.”

“9. Rate of Levy.- The rate of levy payable under this Act shall be 0.5% of the net moveable wealth exceeding one million rupees.”

3. This judgment shall decide the connected petitions (Appendix-1) which also involve a similar question of law and a common thread which runs through these petitions is the challenge to the constitutionality of the levy under the Act, 2013.

4. A report on behalf of the respondent No.2 was filed which sought to justify the imposition and exaction of the levy on the ground that it was intended to provide financial assistance, social protection and other net safety measures to economically distressed persons and families as enshrined under the principles of policy given in the Constitution. Accordingly, according to the report, the charge of levy for the well being for the economically distressed citizens which is a state obligation and, therefore, is in accord with the letter and spirit of the Constitution.

Submissions of Petitioners’ Counsel:

5. Three primary and related submissions have been made by the learned counsel for the petitioners. It has been argued that:

a. The levy is not within the domain of the Federal Government and is outside the Entry 50 of the Federal Legislative List under which the Parliament is empowered to legislate on the capital value of assets and not on the net value of wealth and assets.

b. The levy is fee and not a tax and, therefore, could have been imposed through a money bill and offends the mandate of Article 73 of the Constitution.

c. The levy is discriminatory legislation as it only applies to those who file their wealth statement and whose net movable wealth exceeds 1 million rupees.

6. The learned counsel for the respondents has retorted by relying upon the two judgments of the Supreme Court of Pakistan as also a judgment of the Karachi High Court and that of Lahore High Court from which those cases arose in the Supreme Court of Pakistan and submitted that the question whether the net value of assets/wealth is included in the broader concept of capital levy of assets has been conclusively determined by the Supreme Court of Pakistan in the precedents cited by the learned counsel for the respondents and, therefore, a challenge on this ground does not lie. It has also been contended by the learned counsel for the respondents that the levy is a tax and not a fee and, therefore, the submission with regard to the imposition having been made through the money bill is without substance.

Entry 50 of the Federal Legislative List:

7. Entry 50 of the Federal Legislative List of the 4th Schedule to the Constitution reads as “Taxes on the capital value of the assets, not including taxes on capital gains on immovable property.”

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