2022-09-07

West Bank

West Bank / Announcement / Core Program / position paper

The Draft Decree-Law on VAT Violates both the Human Rights and the Principles of the Rule of Law.

MUSAWA closely examined The VAT draft Decree-Law, without a number, for the year 2022, and reaffirmed its refusal and objection of the issuance of decree-laws, due to its direct conflict with The Basic Law for what it represents as a usurpation of the legislative authority’s jurisdiction, and its aim to tamper with the components of the legal system, by perpetuating the absence of the legislative authority, in addition to changing the structure of the legal system in a way that accumulates all the authorities in the same hands undermining the most prominent principles, values, and the constitutional texts of The Basic Law. In addition, it breaches the authority’s obligations resulting from joining international treaties and covenants, as it is legally obligated to implement their provisions. Therefore, for the purpose of explaining the flaws and risks entailed in the texts of this draft decree-law that necessitate its abolition, without prejudice to this position based on The Palestinian Basic Law and The Declaration of Independence before it, as they are the social contract governing the relationship between the system’s authorities and its citizens, MUSAWA states the following:

– The draft decree-law violates Article (88) of The Basic Law, which clearly states that “The imposition, amendments, and cancellation of the general taxes and fees can only be done by law, and no one is exempt from all or some of it, except in conditions specified in the law”. The law referred to in the text is the law issued by the legislative authority, that has the inherent jurisdiction in legislation and monitoring. Therefore, imposing general taxes and fees by a way other than the law is not permissible and shall be void, which also forbids imposing or amending it by a decree-law that falls after the law in the legislation hierarchy as per the constitutional principle known as the hierarchy and power of legislation. It is not permissible to use the absence of the legislative council to justify issuing the decree-law. The solution to the absence of the legislative council is by holding general elections, not by ignoring it and granting legislative power to certain incompetent parties that are not granted the status of a constitutional legislative body by The Basic Law to regulate the imposition, amendment, and cancellation of taxes and fees. In addition, it is not permissible to use the lack of a VAT Palestinian legislation as an excuse to breach the constitutional requirements and justify the executive authority’s takeover of the legislative authority.

– There is no doubt that the requirements of Article (43) of The Basic Law are not fully met, and the reference to Article (43) in the draft decree-law is a futile attempt to justify its issuance, as the Legislative Council has been absent and is therefore not in a “non-convening state”. In order to implement Article (43), there must be a Legislative Council that exercises its powers. If the council is actually not in session, then one of the requirements is met and the decree-law can be implemented, otherwise it cannot be implemented. Also, there is no urgent matter or a necessity that can only be resolved by the issuance of a legislation, and therefore the lack of such necessity prevents the issuance of a decree-law. Out of respect and adherence to The Basic Law, the implementation of such legislations should be postponed in order to be issued by the elected legislative authority based on the principle of “No taxation without representation”. This means that the one imposing the tax should be a representative of the general will who is elected by them through periodic general elections, and this is a societal demand that has not been implemented yet. Thus, the issuance of a decree-law contradicts the principle that there is no taxation without representation.

This is not to be understood as an acceptance of the issuance of this draft, but rather due to societal pressure against this draft and for the purpose of explaining to the citizens the flaws and shortcomings entailed in the texts of the aforementioned draft decree-law, MUSAWA states the following:

– The preamble of the draft decree-law is based on legislations issued between 1963 and 2005, and waiting this long negates the claim of a necessity that cannot be delayed.

– Article (2) of the draft imposed a 16% VAT on all trades without discrimination, and it did address or implement the principle of progressive tax depending on the importance of the transaction and its relevance to the basic needs such as bread. Stating that progressive tax rates are referred to regulations contradicts with what is contained in the text, which represents a barrier against the implementation of progressive rates, whether in the text or the regulations pursuant to the rule “the unconstitutionality of any regulations contrary to the law”.

– The second paragraph of Article Two of the draft grants the Council of Ministers, upon the recommendation of the Minister, the authority and jurisdiction to amend the tax rate by a ministerial or governmental decision that does not rise to the rank of law as it is an administrative decision and should be subject to judicial review in accordance with the text of Article (30/2) of The Basic Law, which states: “Laws may not contain any provisions that provide immunity to any administrative decision, or action against judicial review”. The draft also provided the director with immunity against any appeal against his decisions to determine the tax due on any taxpayer who fails to submit the monthly periodic report. It is clearly stated in the second paragraph of Article (80) depriving the taxpayer from challenging the director’s decision and this text is another violation of the second paragraph of Article (30) of the aforementioned Basic Law. In the second paragraph of Article (87), the draft also provided the objection committee's decision with immunity against any appeal, and its decision regarding the objection was considered final.

– The third paragraph of Article (2) of the draft decree-law enables the Council of Ministers, upon the recommendation of the minister, to impose a lump-sum tax on any business activities with the exception of the liberal professions’ activity, and the observations that apply to the second paragraph of the same Article apply to the text of this paragraph. This enables the government to circumvent the first paragraph of Article (4) of the draft regarding the exemption of all non-profit institutions’ activities from tax, especially since the second paragraph of Article (4) clearly included imposing tax on non-profit organizations in any business or activities that compete with the private sector, as per the tax rates mentioned in Article (2) of the draft decree-law,.

– Imposing VAT on what the draft decree-law referred to as “activities carried out by non-profit institutions that compete with the private sector”, is a deviation from the provisions of Law No. (1) of the year 2000 regarding charitable societies and civil bodies. It also restricts the work of non-profit organizations and interprets their activities in a way that contradicts with their essence, and purpose. According to the aforementioned Organizations Law, organizations must carry out non-profit activities to implement their plans and programs to achieve their societal mission. Therefore, the concept of competition does not apply to those activities, even if it shares the same activities with the private sector or the government, because the criterion for competition is profit, and since the activities of non-profit institutions are not intended for profit, there is no room for implementing such a criterion, which means they cannot be taxed. In addition to the inevitable infringement on social justice principles if the standards of fictitious competition are applied for the purpose of taxing the activities of non-profit organizations.

– The second paragraph of Article 10 of the draft decree-law required non-profit organizations that they disclose the donations and financial support they receive in accordance with the provisions of the draft decree-law. The inclusion of this disclosure under the umbrella of this decree-law is an unjustified stretch of the law, especially that the disclosure of what organizations receive is regulated by the organizations’ Law and several other laws, such as the Anti-Corruption Law. The purpose of this text is to enable the government or the minister to implement his powers as contained in Articles (2) and (4) of the draft, contrary to the exemption principle contained in the organizations’ Law, which enables the government to impose a VAT as a lump sum, especially since the fourth paragraph of Article (17) of the draft decree-law considers that non-profit organizations are required to pay tax and deposit in the public treasury account. The basic principle is that if one is exempt from tax, then one is not required to pay it.

– The draft lacks a definition of the electronic transaction and does not indicate why only the buyer is obligated to pay VAT, and not the seller.

– The draft entrusted the Customs Court of First Instance with the powers of the Administrative Court according to many of its Articles, including the fourth paragraph of Article (57), Article (58), Article (73) and Article (104). It also entrusted it, in accordance with Article (104), with the power to hear and adjudicate in criminal cases, and stripping this jurisdiction from the powers of the Magistrate’s Courts and regular courts of first instance. This violates the principle of subject-matter jurisdiction and infringes on the jurisdiction of the administrative judiciary and entrusts it to one of the first-degree courts in the regular judiciary, despite the formation of administrative judiciary on two levels (without prejudice to our position on this formation).

– The draft restricted the act of granting non-profit organizations and companies the tax-exempt status, by giving the director the authority to request any guarantees he deems appropriate to complete that registration, in accordance with the text of the sixth paragraph of Article (61) of the draft. This is a departure from the provisions of the law of charities and NGOs, and the provisions of the first paragraph of Article (4) of the draft. In addition to a deviation from the provisions of the second paragraph of Article (26) of The Basic Law that granted Palestinians the right to participate in political life as individuals and groups, including their right to form unions, organizations, federations, associations, clubs, and grassroots organizations in accordance with the law (the law governing them); The law of Charities and NGOs.

– The third paragraph of Article (84) of the draft restricted the right to challenge the decisions of the objection committee, provided that the objector pays the undisputed tax due. This restriction is a breach of the principles of the right to litigation and justice, as such right may not be constrained by any restriction which contradicts the text of the first paragraph of Article (30) of The Basic Law, that clearly states: “Litigation is a protected and guaranteed right to all people, Each Palestinian shall have the right to seek redress in the judicial system. Litigation Procedures shall be organized by law to guarantee prompt settlement of cases”. In the fourth paragraph of the same Article, the draft granted the objection committee a one-year period to adjudicate the objection submitted to it, which goes against the principles of prompt justice and settlement of disputes and objections. Therefore, it affects the right of citizens to achieve justice and obtain a judicial remedy in the shortest time, ultimately forcing them to waive their right.

– The draft, in accordance with the provisions of Article (91), provided the director with the power to impose late fees and interest charges on the taxpayer if he fails to pay taxes in due date. This contradicts the constitutional principle that considers the fine as a penalty that is imposed only by a judicial decision which is a violation of the text of Article (15) of The Basic Law, that clearly states: “...and no penalty shall be imposed except by a court ruling... ”. The aforementioned text also stated that the director’s decision to impose late fees and interest is final and is not subject to appeal, contrary to the above-mentioned text of Article (30/2) of The Basic Law, not to mention that the interest value is determined either by the agreement of the parties or by a judicial decision, and the right to impose and determine the value may not be granted to one party over the other.

– The second paragraph of Article (94) of the draft stated that the partners may be prosecuted as individuals regarding any tax obligation on the company itself without specifying a standard or limit for the partner’s obligation. This contradicts the general rules that require the separation of the company’s liability from the liability of its partners and confining the partners’ liability according to their contribution to the company’s capital.

– Article (95) of the draft granted the Commissioner-General the power to seize funds, ban travel, prevent commercial activity, and delay customs clearance with the approval of the minister. According to the two paragraphs of Article (102) of the draft, the commissioner-general has the authority to obtain the banking information of any taxpayer. It also requires the banks to allow the commissioner to view the accounts and provide him with the information he requests, and refraining from it is considered a violation of the provisions of the draft exposing them to accountability and punishment.  However, these procedures are entrusted to the judiciary only, as they fall under the umbrella of sanctions and the restriction of the constitutional right of privacy, which goes against The Basic Law, especially Article (15) referred to above, and the second paragraph of Article (11) of The Basic Law, which clearly states: “It is unlawful to arrest, search, imprison, restrict the freedom, or prevent the movement of any person, except by judicial order in accordance with the provisions of the law. The law shall specify the period of pre-trial detention", in addition to Article (20) of The Basic Law establishing that freedom of movement and residence is a guaranteed constitutional right, which infringes on and usurps the powers of the judiciary giving them to the executive authority. The assault on the judiciary and its authorities is an impingement on the constitutional principle of the separation of powers, the constitutional rights of citizens, and a clear breach of the provisions of Article s (2), (10) and (32) of The Basic Law. Article (2) states that “The people are the source of power, which shall be exercised through the legislative, executive and judicial authorities, based upon the principle of separation of powers and in the manner set forth in this Basic Law”. The first paragraph of Article 10 states that “Basic human rights and liberties shall be protected and respected” while Article 32 states: “Any violation of any personal freedom, the sanctity of the private life of human beings, or any of the rights or liberties that have been guaranteed by law or by this Basic Law, shall be considered a crime. Criminal and civil cases resulting from such violations may not be subject to any statute of limitations. The National Authority shall guarantee a fair remedy to those who suffer from such damage”.

– The third paragraph of Article (100) of the draft grants the director the power of confiscation, which is prohibited based on the fourth paragraph of Article (21) of The Basic Law that stipulates that confiscation shall be in accordance with a judicial ruling, and it is a violation of the powers and competencies of the judiciary.

– In the fourth paragraph of Article (104), the draft imposed fees on tax appeals equivalent to 1% of the difference between the estimated tax amount and the standard tax amount, provided that it is not less than 200 dinars and not more than 1000 dinars, and that half of the fee is paid when the appeal is renewed. According to the fifth paragraph of the same Article, the appellant was obligated to pay a fee of 200 dinars if his appeal or claim is based on an unestimated tax value, or if his appeal was based on a decision that is not focused on tax disputes, which contradicts the principle of litigation for free or for only a small fee. This restricts the right to resort to the judiciary and is at least four times the amount of the established fee for administrative appeal.

– In its seventh chapter regarding what it called crimes and penalties, and in Article (108) of the draft, it adopted the approach of tougher sanctions and listed doing or refusing to do certain actions under the umbrella of crimes. For example, refusing to appear before the department, not submitting information or documents, failing to register, or not bringing input invoices from real estate developers. This goes against the modern criminal philosophy that adopts reform and integration instead of harsh punishment such as imprisonment for long periods, up to four years, according to the draft decree-law, and could increase in the case of recurrence or repetition. In addition, the draft breached the constitutional principle that the penalty shall be personal, as stated in Article (106): “The chairman and members of the board of directors, partners, employees, workers, and relevant contractors, including the accountant or auditor, shall be given the same penalty for those acts”. It also violated the principle of innocent until proven guilty by mandating that each/and/or/any of those mentioned above to prove that they were not aware of the criminal acts of a company or partnership. It also obligated them to prove that they took all the necessary measures to prevent the occurrence of such acts. The draft committed the same violation again in Article (107) which stipulated that the taxpayer is liable for the acts of others (employee / agent, etc…) who violate the draft provisions or the regulations issued according to it. Accordingly, the taxpayer shall receive the same punishment for those acts, unless it is proven that these acts were committed without his knowledge or that he took all necessary measures to prevent its occurrence.

– In the second paragraph of Article (109), the draft introduced the term “written request” instead of a “complaint”, as it stated: “All lawsuits regarding crimes committed in violation of its provisions is filed by the Public Prosecution based on a written request submitted by the Commissioner of Revenue”. The author of the draft referred to it as the law in a number of its texts to give it the status of law in an attempt to circumvent and elude the principle of legislation hierarchy, including the text of the second paragraph of Article (108).

– In Article (110), the draft considered that the penalty fees are civil compensations to the department and excluded it from the provisions of the general amnesty. This a stretch of the civil compensation concept and the inclusion of the penalty under its umbrella contradicts the legal rules that the civil compensation is a stand-alone claim ruled by the court if there is sufficient evidence. It also contradicts all penal legislations, as it mandates that penalties are no longer subject to compensation.

– In Article (111), the draft permitted the prohibition of confiscation considering that it is not a substitute for the penalties contained therein, and it contradicts the clear text of The Basic Law referred to above,

– In Article (112), the draft granted the Council of Ministers, alone and without any control or approval from the taxpayer, the right to amend all the amounts contained therein except for those mentioned in chapter (16) regarding the judicial appeal, and considered that this amendment is in force and should be published in the Official Gazette (Al-Waqaee Al-Fillistiniyya).

– In Article (114), the draft required every accountant or certified auditor to submit to the department a list of the names and addresses of his clients within a period not no later than the end of the third month of the year following the fiscal year.

– The second paragraph of Article (119) of the draft grants authority to the Commissioner of Revenues, based on the instruction of the director-general and upon the recommendation of a committee formed for this purpose, to prohibit any person from representing a taxpayer before the department in any case or action other than his own case. If the commissioner is convinced that that person did something during his visit to the department that would cause an obstruction to the workflow or a way to evade the draft, then the commissioner may decide not to accept the accounts prepared or audited by that person (the taxpayer representative), whether he is an accountant or a legal auditor, for the period he deems appropriate. This text violates authority of the judiciary and the union of the taxpayer’s representative, such as the lawyers, as it hinders his ability to carry out his legal duty to represent his client and infringes on the right of defense, without a legal basis, justification or professional standard, especially since the commissioner-general based his decision on personal conviction as is clearly stated in the text of the draft.

MUSAWA stresses the importance of consulting specialists in finance and accounting regarding the draft texts as it relates to their specialty field. Given what it documented of grave violations of The Basic Law, principles and constitutional values, individual and collective rights and freedoms and the universal principles of the rule of law, MUSAWA calls for its abolition and calls on other civil society institutions and relevant bodies to raise their voice to cancel the draft or put it aside.

07/09/2022