beyond public finance

Beyond Public Finance: Towards Constitutional Poli…

Taxation, constitutional legitimacy & fiscal justice

The previous Part VII of this series traced the contributions of Abu Yusuf, Al-Ghazali, Ibn Taymiyyah, Al-Maqrizi and Ibn Khaldun to public finance and political economy. Their works differed in purpose and historical setting, but a common normative framework emerged: justice in public burdens, accountability of authority, consultation in collective decisions, protection against arbitrary appropriation, honest exchange, responsible administration of public resources, wider circulation of wealth and protection of vulnerable citizens.

These principles do not provide a ready-made tax code for a modern federation. They offer something more fundamental: standards by which taxation, expenditure and public authority may be judged.

The same standards find expression in the constitutional order of Pakistan. Taxation is not legitimate merely because money is required by the state or because a provision has been inserted into a Finance Act.

Parliament possesses wide legislative authority, but it is a creature of the Constitution and not its master. It cannot validly enact what the Constitution prohibits, invade a field constitutionally assigned elsewhere or destroy rights and limitations that bind every organ of the state. The proposition appears elementary. Pakistan’s fiscal practice repeatedly ignores it.

Article 77 of the Constitution provides that no federal tax shall be levied except by or under the authority of an Act of Parliament. This embodies the historic principle of no taxation without representation. Revenue cannot be extracted through executive preference, administrative instruction or unstructured discretion. Legislative authority must exist.

Article 77 is a necessary condition for lawful taxation, not a complete test of constitutional legitimacy. A tax enacted by Parliament must also conform to the distribution of legislative powers, equality before law, due process, protection of property and other constitutional guarantees.

Parliamentary form cannot cure substantive constitutional defect. Otherwise, the requirement of constitutional supremacy would be reduced to the proposition that Parliament may do anything so long as it records the command in statutory language. Pakistan is not governed under parliamentary sovereignty in the British sense. It is governed under a written and supreme Constitution.

Legislative authority is not unlimited authority

The Constitution divides taxing powers between the Federation and provinces. Parliament cannot convert a provincial subject into a federal one merely by changing its label. A levy upon capital value cannot automatically become income tax because it is placed in the Income Tax Ordinance, 2001. A tax upon services cannot be extended to transactions lacking the character of a service merely because additional revenue is desired.

The true nature, subject matter and effect of the levy remain decisive. This is particularly important because fiscal pressures create incentives to stretch legislative entries beyond their constitutional purpose.

Governments confronting debt servicing, defence expenditure and programme targets naturally seek accessible revenue. Constitutional limitations exist precisely because necessity, convenience and expediency cannot be allowed to determine the boundaries of public power. A Constitution does not become less binding when the treasury is empty.

The Supreme Court’s jurisprudence has recognised that Parliament’s taxing competence, though broad, is not without constitutional limits. In Elahi Cotton Mills, the Court accepted substantial legislative latitude in taxation, including the use of legal fictions, classifications and presumptive methods. It also made clear that the legislature cannot tax as “income” something that cannot rationally possess the character of income. The breadth of a legislative entry does not eliminate its essential subject matter.  The same discipline must govern every fiscal enactment.

Equality is not arithmetical uniformity

Article 25 guarantees equality before law and equal protection of law. Equality does not require every person, transaction or source of income to be taxed identically. Legislatures may classify taxpayers and activities where a real distinction exists and the classification bears a rational relationship to the purpose of the law. The power to classify cannot become a licence to privilege.

Pakistan’s tax system contains numerous distinctions based upon source, status, sector, documentation and bargaining power. Salary, dividends, profit on debt, business income, contracts, imports, property income and capital gains are frequently subjected to different rates and regimes. Some differentiation may be justified by collection realities or constitutional allocation. Much of it has emerged through political accommodation rather than coherent principle.

A constitutional analysis must therefore ask whether similarly situated persons are treated alike, whether distinctions correspond to genuine economic differences, and whether the burden imposed is reasonably connected with the stated objective.

Higher transactional taxes upon “non-filers”, for example, are presented as instruments of documentation. Their constitutional and economic legitimacy becomes doubtful when they operate indefinitely as revenue measures without determining actual income, establishing liability or bringing the person into a genuine assessment system. A temporary incentive to file cannot become a permanent substitute for income taxation.

Due process in fiscal administration

Article 4 protects the right of every person to be dealt with in accordance with law. Tax administration must consequently involve more than statutory authority to demand money. Liability must be determined through fair procedures, relevant evidence, a meaningful opportunity to respond and access to independent adjudication.

Automated notices, coercive recovery, attachment of accounts, blocked refunds and repeated demands without proper examination undermine this constitutional relationship. Technology does not suspend due process.

Digital systems can improve matching, risk identification and transparency. They cannot transform an algorithmic suspicion into established liability. The taxpayer must know the basis of the demand, confront the material relied upon and obtain a reasoned determination from a legally competent authority. A revenue system that collects first and examines legality later converts constitutional administration into fiscal compulsion.

The Supreme Court’s judgment in Mustafa Impex also reinforced the constitutional identity of executive authority. Statutory powers assigned to the Federal Government cannot automatically be exercised by an individual minister, division or official unless the constitutional and statutory framework permits it.

Fiscal measures made through notifications and delegated authority must remain within the limits imposed by the parent legislation and the constitutional structure of government.  Delegation may supply machinery. It cannot create a new taxable event, enlarge the charge or transfer essential legislative choices to the executive.

Property, consent and public purpose

Taxation necessarily affects property. The Constitution permits lawful taxation and does not convert every fiscal burden into unconstitutional deprivation. The state may require citizens to contribute towards public purposes. The constitutional concern arises when extraction becomes arbitrary, discriminatory, confiscatory or disconnected from lawful competence.

The moral traditions discussed in the previous part treated public revenue as a trust rather than the personal entitlement of the ruler. Modern constitutional government expresses the same principle through representative authorisation, public accounts, legislative oversight, audit and judicial review.

Revenue belongs neither to the government of the day nor to the bureaucracy collecting it. It is held for constitutionally legitimate public purposes. This dimension is often lost in debates dominated by the tax-to-GDP ratio. The state’s claim to additional revenue is discussed independently of the manner in which existing resources are spent.

Citizens are asked to contribute more while debt servicing, administrative waste, privileges, untargeted subsidies, losses of state-owned enterprises and non-transparent expenditure continue. Fiscal legitimacy has two sides: justice in collection and accountability in expenditure.  A tax system cannot command durable consent when citizens perceive that sacrifices are widely imposed but benefits and privileges remain concentrated.

Consultation and representative consent

Consultation is not satisfied by formally passing a Finance Bill under compressed parliamentary procedures. Meaningful representative consent requires disclosure of the purpose, incidence and constitutional basis of proposed taxes.

Parliamentarians must receive sufficient time and information to understand who will bear the burden, what alternatives exist and how the revenue will be used. Pakistan’s practice of introducing major substantive changes through annual Finance Acts weakens this process. Complex amendments affecting rights, liabilities and institutional powers are frequently enacted with limited scrutiny. Delegated legislation then adds exemptions, procedures, valuations and collection obligations outside meaningful parliamentary debate.

The Constitution requires legislation. Constitutional political economy requires informed legislation. Public participation also matters. Trade bodies, professionals, workers, consumers, provinces and local governments should not be heard only according to their capacity to lobby. Consultation must be transparent enough to prevent organised privilege from masquerading as public interest.

Wider circulation of wealth

A constitutionally legitimate fiscal system cannot remain indifferent to extreme concentration of wealth and opportunity. The Principles of Policy [Article 29 to Article 40] require the state to reduce inequality, prevent concentration of wealth and provide basic necessities. These provisions are not directly enforceable in the same manner as Fundamental Rights [Article 8 to Article 28], but they articulate the social purposes for which public power and revenue exist.

Taxation should therefore support wider access to education, healthcare, justice, infrastructure and economic opportunity. It should restrain unproductive privilege without penalising enterprise, savings or capital formation.

This requires careful balance. Confiscatory taxation can destroy incentives and production. Regressive taxation can preserve wealth at the top while burdening consumption at the bottom. Exemptions ostensibly designed to promote investment can become permanent transfers to organised interests.

Fiscal justice lies neither in maximising extraction nor in protecting accumulated privilege. It lies in imposing reasonable and predictable burdens according to capacity, while using public resources to enlarge human and productive capability.

When lawful taxation becomes fiscal coercion

Fiscal coercion begins when the state treats statutory enactment as the end of constitutional inquiry. Its symptoms are familiar: gross receipts taxed without regard to income; private persons converted into unpaid collectors; refunds retained as involuntary financing; executive notifications used to alter substantive burdens; documented taxpayers repeatedly targeted because they are accessible; and politically influential sectors protected because they are difficult to confront. Such a system may collect revenue. It weakens citizenship.

The relationship between taxpayer and state cannot be built upon fear alone. Sustainable revenue requires legitimacy, predictability and confidence that rules apply equally. Ibn Khaldun understood that the state eventually damages its own foundations when increasing expenditure produces heavier extraction, declining incentives and contracting productive activity. The modern Constitution supplies enforceable restraints against that decline.

A just tax system must satisfy more than the requirements of arithmetic. It must rest upon legislative competence, representative consent, rational classification, due process, protection against arbitrary deprivation, transparent expenditure and effective remedies. Parliament must levy taxes.

Parliament cannot constitutionalise injustice merely by enacting it. Pakistan’s fiscal crisis will not be resolved by asking citizens to finance an unreformed state through increasingly coercive instruments. The state must first establish that its demands are lawful, equal, accountable and directed towards a constitutional public purpose. Only then can taxation become an expression of citizenship rather than an instrument of extraction.

In the concluding part, we shall apply these principles to contemporary proposals for closing Pakistan’s tax gap and ask what it would take to reconstruct—not merely refinance—the fiscal state.

[To be continued]

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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.

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Here is what nobody puts on a talk show: over the past three years, dozens of Pakistanis — an elderly widow in Gujranwala, a mother of four in Jahanian, a young man in Faisalabad, a payphone operator in Peshawar — have taken their own lives after receiving electricity bills they could not pay. These were not abstractions. They were documented, named, buried. And yet no anchor has spent eighteen consecutive nights asking the chairman of NEPRA why. No panel has summoned the CEO of the Central Power Purchasing Agency to explain, plainly, in language a shopkeeper in Bahadurabad could understand, why this country of 260 million people pays some of the region’s highest power tariffs while its own regulator’s reports describe capacity sitting idle. Where is the media trial of the men who told us, from 2014 to 2018, that imported coal would be Pakistan’s “game changer,” and of the former prime minister who made the same promise about LNG-fired plants? Those promises are now line items in a debt-trapped economy, in a nation reduced, again and again, to a global begging bowl. But no one is asked to answer for them on camera. They sit, as it were, behind a veil — while the Director General of ISPR and the Chief of Defence Forces routinely stand before microphones and take hard questions. Why can Pakistan’s military spokesmen face the public, but not the men who set the price of electricity for every household in the country? I want to be precise, not merely aggrieved, so let me offer what I found when I went looking myself. CPPA-G’s own energy purchase data for May–June 2026 shows three nearly identical imported-coal plants — Huaneng Shandong Ruyi at Sahiwal (1,244 MW), China Power Hub in Balochistan (1,249 MW), and Port Qasim in Karachi (1,243 MW) — dispatched at wildly different rates. Huaneng ran at roughly 73 percent of capacity; Port Qasim at only 36 percent; China Power Hub at a mere 24 percent — this despite Huaneng being, by current fuel charges, the most expensive of the three at roughly Rs. 20.38 per unit, against Rs. 15.12 for Port Qasim and Rs. 16.09 for Hub. If Pakistan’s Economic Merit Order genuinely governed dispatch, the cheaper southern plants should be running harder, not idling at a quarter of their design capacity. Something else is deciding who generates and who doesn’t — transmission bottlenecks, take-or-pay contract terms that favor Sahiwal, or simple operational failure at Hub, whose output fell 37 percent in a single month. Whatever the cause, Pakistani consumers are still paying full capacity charges for roughly 760 to 940 idle megawatts at each underused plant — fixed costs for electricity that was never produced, quietly folded into tariffs nobody explains on air. This is not a call to relent on Mir Raza Ali. It is a plea that the same courage be extended elsewhere. I am not asking media to abandon one grieving family; I am asking whether this nation’s curiosity has been rationed, aimed carefully at the stories that move ratings but never at the ledgers that move our poverty. Who decides that a private tragedy in Gulistan-e-Jauhar deserves eighteen days of forensic television, while a public catastrophe costing every household thousands of rupees a month deserves none? Is there a veil, a ghost hand, guiding our screens away from NEPRA’s boardroom and toward whatever is easier to sell? My request to Pakistan’s media is respectful, not accusatory: summon the chairman and members of NEPRA and the CEO of CPPA, and ask them, on camera, to explain the dispatch logic behind May and June’s generation data, to quantify what idle capacity is costing consumers per unit, to say plainly whether transmission constraints are forcing reliance on costlier northern plants while cheaper southern capacity sits dark, and to commit to passing any findings transparently through the Fuel Charges Adjustment mechanism, as the NEPRA Act itself demands. Pakistan is the fifth most populous nation on earth, and yet the men who preside over its power sector — the chairmen and members of NEPRA and OGRA, the leadership

  • Mistaken Credit to a Bank Account: Legal Position

    Pakistan’s banking sector is experiencing a fast pace digital transformation, which includes inception of new digital banks as well as digitalization of the banking services, like Raast, Roshan Digital Accounts etc. Nevertheless, this digitalization sometimes causes technology mistakes / errors in the banking systems as well. One such issue, though to a little extent, is the matter of mistakenly credited amounts to the customers’ accounts, due to system glitches. And unluckily, it is rare that the customers, who are beneficiaries of such mistaken credits, ever bother to intimate the banks about it or return the mistakenly credited amounts. The recovery of such amounts is though legally possible, however, since it is civil cause action, falling within the jurisdiction of civil courts, therefore, it becomes cumbersome for the banks to recover such amounts, easily and speedily. Needless to mention that the subject recovery does not fall within the jurisdiction of the Banking Courts and hence, speedy trial / summary procedure trial is not available for this kind of recovery. In addition, it is also difficult in these cases to have the support of the law enforcement agencies, due to some legal framework’s problems. Luckily, a learned Judge of the Lahore High Court Lahore has recently passed a remarkable judgement on the subject matter, which will support the banks, in such matters. The judgement is regarding a case, where a bank’s system mistakenly credited a significant amount to one of its customers, who utilized a major portion of the amount . The bank pursued the customer and he gave a cheque for the amount involved. The cheque was later bounced, due to insufficient funds in the account and the bank then lodged FIR against him under Section 489-F. He was arrested and his bail was refused by the lower Court, against which he approached the High Court. The High Court observed that the amount received by customer was not meant to be utilized by him, but it was to be retained and preserved by him for return back to the bank. The Honourable Court further observed that the customer was supposed and required to inform the sender/bank regarding the error and make arrangements for its return to the owner/bank. Furthermore, the Honourable Court observed that as soon as the customer became in a position to exercise his control over the property, the property stood entrusted to him impliedly, but he instead of returning the same to its owner/bank, withdrew significant amount and embezzled the same, as such offence punishable under Section 406 of PPC was fully attracted against him. This case will become a precedent that if a bank customer receives mistakenly credited amount in his account and utilizes it, then it will be an offence of Breach of Trust, under Section 406 of Pakistan Penal Code. The Judgement is reported as PLJ 2025 Cr. C 797 LHC.

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