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.
