ZAHEER ABBASI
ISLAMABAD: Without placing it before the Parliament for debate and discussion, the government has announced Economic Reforms Package (amnesty scheme) to legalize undisclosed assets and income of Pakistanis held abroad or at home at a time when less than one-and-a-half months is left in the tenure of the present government.
While announcing the Economic Reforms Package at a news conference on Thursday, Prime Minister Shahid Khaqan Abbasi stated that consultations have been going on for quite some time how to increase the number of income tax payers, and a sketch of the package has been prepared for offering a scheme for whitening of assets and income. The package will be available for assets and income till June 30, 2018, however there is no cut off time date for real estate sector component in the scheme. The Prime Minister stated that politicians, bureaucrats and their dependents will not qualify for the scheme and an Ordinance to this effect will provide full protection to those availing the scheme from various laws.
Abbasi stated that the perception that paying income tax is only an option was not correct rather it’s a responsibility for every citizen. There are only 1.2 million filers in a country of over 207 million people and even half of 1.2 million file return with zero income tax. Virtually the entire burden is on 0.7 million taxpayers and indirect taxes to run the affairs of the country.
The Prime Minister termed the situation unsustainable and stated that radical changes are needed. The proposed Economic Reforms Package, he said, is one time scheme and is different because it is aimed at providing an opportunity to whiten the assets and income.
The Prime Minister’s economic reforms revolve around five elements and technology will be used by pooling scattered data into one database to make available financial transactions of those out of the tax net. He said that traditional methods of notices have become a source of corruption.
The CNIC will be tax number and 120 million CNIC holders can become taxpayers and income tax rate has been substantially reduced from up to 30 to 0 percent for those earning per annum Rs 1,200,000, 5 percent for those earning up to 2,400,000 and 10 percent for those with annual income of up to 4,800,000 and 15 percent for above 4,800,000. He said that the government hopes people will pay taxes after drastic reduction in income tax rate.
The Prime Minister further stated that there will be 5 percent penalty on regularization of local assets and 2 percent penalty on repatriation of foreign assets to bring in the amounts through formal channel. There are two options for foreign exchange repatriation; with one bonds for five years at a rate of 3 percent per annum (6 months payment non encashable in year 01) and all encashment in local currency @ prevailing inter-bank dollar and if one holds dollar account abroad, he can also be part of it by paying 5 percent. Dollar account holders in Pakistan who have purchased dollars through undeclared money can also regularize it on a 2 percent payment. Those who have foreign fixed assets can declare on 3 percent payment and all those remittances less than $100,000 a year will continue without any question from any agency about the sources and all remittances greater than $100,000 a year will enjoy tax exemption but only Federal Board of Revenue (FBR) may question the source.
The Prime Minister said that real estate sector is haven for hidden transactions and these are reflected in the increasing values of properties and there will be presumptive 1 percent tax on declaration of the value of property, and it will be adjustable and the government will have the right to take over the property by paying double the declared amount.
The scope of voluntary declaration of domestic assets ordinance extends to every resident company, resident association of persons and all citizens of Pakistan wherever they may be except holders of public office. The ordinance provides for regularization of all undeclared incomes earned before June 30, 2017 on all local assets (gold, bonds, property) on a payment of 5 percent.
Non-filers of tax returns will not be able to purchase property over Rs 4 million from 1st July 2018. The CNIC will be the tax number and federal government will have the power to buy individual properties anywhere in Pakistan within six months of registration for: 100 percent more for properties registered in fiscal year 2018-19; 75 percent more for properties registered in fiscal year 2019-20; 50% more for properties registered in fiscal year 2020-21 and thereafter.
Replying to questions, the Prime Minister stated that a simplified procedure has been provided to the people by protecting them against FBR coercion and stated that there are punitive actions for those who will not benefit from the opportunity. The Prime Minister said that an ordinance will be issued and those benefiting from the scheme will be protected from National Accountability Ordinance and other laws.
The Prime Minister said that all the loopholes in economic reforms act will be plugged by taking legislative measures. He said that though there are challenges of current account deficit, growth is increasing and infrastructure-related activities are creating employment opportunities.
Abbasi said that chairman of the Senate has no right to call him to the Senate because his stance was very open on his election. “As per my information, sale of votes took place in the election of the chairman of the Senate.”
Foreign Assets Declaration and Repatriation Ordinance
The scope of the ordinance extends to every resident company, resident association of persons and all citizens of Pakistan wherever they may be except holders of public office. It provides for foreign exchange repatriation on 2% payment, with repatriation possible underfollowing 2 options:
1. Bonds for 5 years at the rate of 3% per annum (6 month payment) [not encashable in year 1]
2. All encashment in Pak rupee @ prevailing Interbank Dollar rate
Dollar account holders in Pakistan who have purchased dollars through undeclared money can also regularize them on 2% payment.
It allows declaration of Foreign Fixed Assets on 3% paymentat market price but in no case is less than the cost of acquisition
Foreign Liquid assets including Cash/Securities/Bonds etc. held abroad may be declared at 5% payment
The other salient features of the Ordinance include:
* New accounts of forex from local markets can be opened by Tax filers only
* All dollars remittances less than 100,000 /year/person will continue without any questions asked about the source and enjoy tax exemptions
* All dollars remittances greater than 100,000/year/person will enjoy tax exemptions but only FBR will question the source. This information will not be shared with any other agency
Voluntary declaration of Domestic Assets Ordinance
The scope of the ordinance extends to every resident company, resident association of persons and all citizens of Pakistan wherever they may be except holders of public office. The Ordinance provides forregularization of all undeclared incomes earned before June 30, 2017 on all local assets (gold, bonds, property) on a payment of 5%
The FBR rate on property would be abolished and provinces will be requested to abolish DC rate
The other salient features include:
* No purchase possible for non-filers of tax returns of property over Rs. 4 million
* CNIC to be the tax number
* Reduced tax incidence:
1. Maximum 1% tax (local &Provincial) for registration of property being recommended
2. At Federal level Advance Income Tax being reduced to 1% – adjustable
* Federal Government to have power to buy individual properties anywhere in Pakistan within six months of registration for:
1. 100 % more for properties registered in FY 2018-19
2. 75% more for properties registered in FY 2019-20
3. 50 % more for properties registered in FY 2020-21 & thereafter
Pakistan Progress on Access to International Information
Pakistan has signed and ratified the OECD’s Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Under this Convention;
* An exchange of information mechanism is being established for tax purposes with more than 100 countries, including most of the tax havens.
* It will enable Pakistanto seek information on banking and other details of our residents from these countries for taxable periods 2018 onwards and for tax matters involving intentional conduct which is liable to prosecution, for earlier taxable periods as well.
Pakistan is also commencing automatic exchange of financial accounts information under the OECD’s umbrella from September 2018 onwards and will now receive detailed information about banking and other financial accounts of our residents automatically each year from other countries and jurisdictions.
The provisions of this Convention will expose Pakistanis’ hidden offshore accounts and assets to FBR and help contain cross border tax evasion.
Exemptions
* The Foreign Assets Declaration and Repatriation Ordinance is not valid for the following categories:
1. Money laundering
2. Drug smuggling
3. Terror financing
• It is not applicable to current public office holders/ people in service of Pakistan including their spouses and dependent children.
