The Notice That Imposed a Tax
Suryapur Municipality's revenue section has issued a public notice, with no decision of the municipal assembly behind it, imposing an annual "cooperative business tax" of Rs 18,000 on every savings and credit cooperative operating in the municipality. The finance act passed last Ashad did not list this head. The notice gives the cooperatives 15 days to deposit the amount and warns that their offices will be sealed otherwise. Sixteen of the twenty-two affected cooperatives are licensed and audited under federal cooperative law; the remaining six are unregistered savings groups run from people's homes. Three cooperatives have written to the mayor citing a federal statute and threatening to go to the High Court. The revenue chief has already begun issuing receipts, and bazaar traders support the levy because two cooperatives in the area defaulted on depositors' savings last year. The mayor wants a one-page written opinion from you, the Section Officer in the legal section, before tomorrow's executive meeting.
1. The mayor wants a direct answer: may the municipality keep collecting this amount? Set out your opinion and the reasoning that supports it.
Read the worked answer
Conclusion first: No. Collection should be stopped immediately and the executive should not try to ratify the notice retrospectively.
Reasoning
A tax needs a law, not a notice. The power to tax is legislative in character: it must be exercised through a fiscal law passed by the municipal assembly and published. A circular or notice from the revenue section is an executive act and cannot create a levy, fix a rate, or attach a penal consequence such as sealing offices. The municipality's own finance act for the year does not carry this head, so the demand has no statutory base at all.
Competence must be settled before the rate is designed. Schedule 8 of the Constitution gives local levels defined taxation powers, but the subject matter here - cooperative institutions that are licensed, supervised and audited under federal law - is federally regulated. Even where a local level is competent, its exercise cannot be inconsistent with federal law. Two questions must therefore be answered in writing before any levy is drafted: is the subject within the local list, and does the proposed charge conflict with the federal statute? Where either answer is doubtful, the safe course is to abstain rather than to test the point through a demand notice.
Coercion and retrospectivity aggravate the defect. Threatening to seal offices is a sanction without authority, and demanding amounts for earlier periods is retrospective taxation.
Advice to the meeting: suspend the notice in writing the same day; stop receipts; open a refund register for the money already collected; seek the opinion of the Office of the Attorney General and the Ministry of Federal Affairs and General Administration; and if the assembly still wants the levy, table a properly drafted bill stating the base, rate, exemptions and appeal route, effective prospectively only.
2. The revenue chief has collected Rs 54,000 from three cooperatives and says that money once received is never returned. As Section Officer, how do you handle the money, the records and the internal message?
Read the worked answer
Issue: an unlawful collection creates a restitution obligation, not a windfall, and every day the money stays in the municipal account increases both the refund liability and the audit finding.
Steps I would take, in order
Put the instruction in writing. Oral instructions are what created this situation. I would issue a written directive to the revenue section citing the executive decision to suspend the notice, with a copy to the chief administrative officer, so that no official is later blamed individually for stopping collection.
Ring-fence the amount. Record the Rs 54,000 in a separate refund register with voucher numbers, dates, payer names and receipt numbers. It should not be merged into revenue receipts where it will be treated as realised income in the monthly statement.
Refund with documentation. A refund letter to each of the three cooperatives, a receipt signed by the payer, and a note in the refund register. The letter should state plainly that the demand was withdrawn because it lacked a legal basis - not that the cooperative has been granted a favour, which would invite similar claims from the other nineteen.
Give the executive a written brief. The minutes should record the reason for suspension, the exact amount collected, and the refund schedule, so that the assembly and the auditor see a controlled correction rather than an unexplained reversal.
Prepare for external scrutiny. The three cooperatives may complain to the National Information Commission or the court; the file must be complete and consistent before that happens.
Message to staff: collecting an unlawful levy is not loyalty; a documented correction protects the office and the individual officer. The six unregistered savings groups are a separate problem of registration and supervision, and should not be dealt with through a tax head.