RECORDER REPORT

ISLAMABAD: The final report of the Tax Reform Commission (TRC) has strongly recommended amendments to forex regulations to get hold of the black money held abroad by imposing 15 percent tax on the amount of property owned by persons involved in misdeclaration of foreign assets.

The report finalized by the TRC recommended that specific provision proposed to be inserted in respect of the class of taxpayers who owns property outside Pakistan for which valid declaration has not been made in the wealth statement by the taxpayer… such taxpayers shall be subject to taxation at the rate of 15 percent tax under the Income Tax Ordinance 2001 on the amount of the property owned by them outside Pakistan.

In case of default the power of seizure, under FERA, can be invoked against assets in Pakistan besides other penal actions provided under the law.

It revealed the Foreign Exchange Regulation Act [FERA] needs to be amended in order to get hold of the black money held abroad.

The TRC recommended that a new section is proposed to be inserted. It provides that if any person holds any foreign exchange, foreign security or any immovable property outside Pakistan, the equivalent value of property in Pakistan can be seized. Prescribed procedure has to be followed for the seizure.

Consider a situation where a person is holding assets in a tax haven in violation of the FERA. When Enforcement Directorate wants to seize the foreign assets, the Tax Haven Government and its banks – may not co-operate.

In such a situation, the enforcement officer now will have the power to seize Pakistani assets, the TRC said.

This power of seizure under FERA is in addition to the penal action under Income tax Ordinance 2001 and penal action under the FERA. This provision is drastic. It provides that if the authorized officer has “reason to believe” that the foreign asset is “suspected to have been held in contravention of the FERA …” the consequences of seizure will follow.

Any penal consequence should follow if the contravention is proved. One cannot seize property if an officer has mere reason to believe and he just suspects a contravention. Penal consequences should follow only after the contravention is established.

Such differences of interpretation should not lead to a suspicion or conclusion that it is a contravention; and it should not lead to seizure of property.

The TRC said that the seizure rules should apply only in case of serious contraventions like Hawala transactions. It may be noted that the phrase “Reason to Believe” has been considered judicially. It cannot be a mere suspicion by the officer. He must have a valid reason; and the information for the reason should be on his file when he passed the order.

The provisions of Anti-Money Laundering Act 2010 are far more stringent than the FERA. However Anti- Money Laundering Act 2010 also provides that property can be seized provisionally. Only after the crime in respect of which the guilt is established, the seizure becomes final. Till that time the seizure is not final. Under the FERA, there is no such provision additionally under the Income tax Ordinance 2001.

It is recommended that specific provision proposed to be inserted in respect of the class of taxpayer who owns property outside Pakistan for which valid declaration has not been made in the wealth statement by the taxpayer. Such taxpayer shall be subject to taxation at the rate of 15 percent tax under the Income tax Ordinance 2001 on the amount of the property owned by him outside Pakistan. In case of default the power of seizure under the FERA can be invoked against assets in Pakistan besides other penal actions provided under the law, it added.