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Explaining Pakistans greatest tax amnesty scheme

 Posted on JUNE 11, 2018 12:00 AM



KARACHI: As wealthy people remain reluctant to come forward to take benefit from the domestic and offshore tax amnesty scheme due to their apprehensions, the tax experts and the Federal Board of Revenue (FBR) have tried to address their concerns. Mansoor Ali Khan, the host of To the Point, has discussed these obstacles and challenges with FBR Member Inland Revenue Policy and official spokesperson Dr Mohammad Iqbal, Senior Partner of A F Ferguson & Co Shabbar Zaidi, and The Express Tribune Economic Correspondent Shahbaz Rana. Govt considering taxing gifts among non-family members Mansoor Ali Khan I welcome you to the programme To The Point. Viewers, this morning I received a message on my mobile from the FBR in which it said that if you want to maintain your social status and mental peace, you should take advantage of the amnesty scheme by taking relief on your assets till June 30. And then my mind started raising many important questions on the topic. I searched for many news stories. The government announcements and their implementations were not so clear and understandable. I thought if the persons who are always associated with the world of news day and night and not able to understand and are confused on the outlines of the scheme, can a layman or a businessman understand the scheme properly? After this notion and setting aside the political debates, I decided to run a programme on this topic of national importance and contacted the experts of the field so that the complexities of this tax amnesty scheme could be solved. The scheme will increase the tax net and bring the wealth that is in the country or abroad, but is not in the tax net, into the tax net. How can this happen? How will people with such wealth trust this scheme and can this help bring the national wealth into the country? It is time that the national wealth returns to the country and perhaps for this the PML-N government has announced a one-time tax amnesty scheme just before leaving. Now, the next phase is the implementation of the scheme. How will it be implemented and how will the confidence on the scheme be shown? Will it benefit the national exchequer or not? We have here, to find us the answers to these questions, FBR spokesperson Dr Muhammad Iqbal, senior economic analyst Shabbar Zaidi and The Express Tribunes Senior Reporter Shahbaz Rana. Thank you to all of you for coming. FBR chairman, interior, information secretaries removed as permanent members of PEMRA I want our analysts to guide us. The questions regarding this amnesty scheme, people associate in Pakistan with industry, business community, or other fields. They want that the benefits of the scheme could be taken. But there are ambiguous areas to be clarified where we need clarity. First of all, I shall put a question for Dr Muhammad Iqbal. This forms a basic question, which I think most people would want to ask. If this can be benefitted from, do the tax authorities ask about the source of the property and assets; where did the money come from? Dr Muhammad Iqbal Mansoor sb the very basic purpose of the scheme is that the beneficiaries of the scheme who will declare their assets or income, they cannot not be asked about the source of the income that was used to create these assets. This is the basic purpose of the scheme. The problem is that in an ideal world, there should be no need of such a scheme where every taxpayer tells their real income and assets but practically we have a large undocumented sector about both, the domestic assets and the foreign assets. Therefore, the very basic purpose of the scheme is to give one opportunity to the people so that they could once declare the things that they did not mention in their tax record and so regularize so that they could save themselves from any kind of consequences. Mansoor Ali Khan Dr sb another questions that comes in is a big list that appeared in Panama Leaks in which there are many names. If someone has their name in the Panama Leaks, and they want to benefit from this tax amnesty scheme, can they benefit from the scheme as well? Dr Muhammad Iqbal Look, this scheme has some exceptions, major being that the holders of public office cannot benefit from it. Like government employees or those who have enjoyed a political office. They cannot avail this scheme. The second important exception is that the cases, which are under proceedings in any court of law, also cannot avail this scheme. On the other hand, it does not matter that there is any mention in the Panama or not. Mansoor Ali Khan Shahbaz Rana sb, you heard this discussion. He said that a person can benefit, no matter their name appears in the Panama if it is not under litigation or no legal proceedings are under way. Then there is no problem. Also there is no problem for a public office holder. But there have been lot of confusions during the last ten years about the public office holders, what do you think? Shahbaz Rana Yes, you are very much right. You see that the scheme is effective from April 10, but people have some reservations in their minds regarding it so far. The people who want to take advantage of this scheme think that it is a very unique opportunity. The basic reason is that we have an agreement with OECD and from September 2018 Pakistan will start exchanging information with OECD. So, this is like a window of opportunity that is ending on June30, because there is very little time left, questions are arising in the minds of the people. The basic question is who can benefit and who cannot? They have said that the public office holders who held office for the last ten years cannot benefit from it. As Dr Iqbal said that everyone can benefit if even if their names appear in Panama Leaks but if their case is not in court. I want to ask Dr sb an important thing and that is that would it be mandatory for a non-resident Pakistani with a dual nationality to declare wealth statement to benefit from this scheme? Dr Muhammad Iqbal Look, filing or not filing the wealth statement is not the issue under the scheme. Wealth statement has to be filed according to the requirements of the Income Tax Ordinance, which is that everyone who files an income tax return will have to file wealth statement along with that. And being a dual national also does not matter. The basic concept of income tax is of a resident taxpayer. And the resident taxpayer individual is a person who has lived for at least 183 days in Pakistan in a tax year, which is also a financial year. If he has lived in Pakistan for 183 days, he has to declare his total world income in his tax return and he also has to give his wealth statement with that. But if he is not a Pakistani resident, then if he has any Pakistani source income, he has to pay tax on that. This is an international taxation concept so that double taxation could be avoided. So, there is no requirement about filing or not filing of wealth statement in the scheme. That is mentioned in the general provisions of the income tax ordinance. A new thing that we have done this year through Finance Act 2018 is that in addition to that a statement of foreign assets and income statement has also been made mandatory by law for all those resident tax payers who have either foreign income or [assets]. First of all that person has to be a resident tax payer. If he is an expatriate Pakistani who is working in a foreign country, that statement is not mandatory to file for him. But if he is a resident Pakistani and he has more than $10,000 of income per year from abroad or he has assets of more than $100,000, he has to submit statement of foreign assets as well. Perhaps this is causing confusion of wealth statement and other statement. Wealth statement is to be filed independently and the statement of foreign income and assets is independent and only for those who have assets or income abroad. Shahbaz Rana Mansoor sahib, there is a small technical point to mention here. A non-resident Pakistani has been a non-resident since the past two years, and as per the FBR law, you can go back up to the past five years. So, a current non-resident Pakistani of today used to be a resident Pakistani three years ago. So, would it be necessary for him to declare his wealth statement and bank balance? Dr Mohammad Iqbal Well, the wealth statement is an annual feature. It is an annual feature and one has to give wealth statement in the year in which he was resident Pakistani. The foreign assets statement, which I told you, has to be furnished from the subsequent years. The statement for previous years is not needed at all. When one will file his return, then FBR will ascertain his status whether he is a resident or a non-resident. If he was a resident in the preceding years, but not a resident in the current year (when he has to file a return along with this statement), then my view is that he would not be required to furnish that statement. Mansoor Ali Khan Lets take this discussion forward. There are a few scenarios, which we need to have commented upon by Mr Mohammad Iqbal. Scenarios like such may include, for example, a person who holds a trust abroad, but if the beneficiaries of that trust is anyone else, and he himself does not know when exactly the funds of the trust will be transferred, then how can the amnesty scheme be helpful for them? We will raise this question after a break. Stay with us. Welcome back after the break. We have different questions pertaining to the amnesty scheme. Let us move with more questions. The spokesperson for FBR is here with us. In addition, we have Shabbar Zaidi with us and senior reporter Shahbaz Rana is also with us on board. Dr Iqbal, please elaborate for us regarding the tax investigation. Suppose an investigation is being carried out for an individual, be it in the form of audit, or through a court of law. Can such individuals drive advantage from this amnesty scheme? Dr Mohammad Iqbal Well, as I told in you in the start, if any individuals case is being dealt with in any court of law, then he is not entitled to avail to the amnesty scheme. But court of law does not mean our offices. If any of our own office, subordinate office or field office is carrying out investigations for a given tax case, then that case will not be seen as a case for pending in a court of law. This law has stated definition for court of law. So, in simple words, it implies that if someone is getting his accounts audited, he may be able to avail this amnesty scheme. Mansoor Ali Khan Alright, we had also talked about public office holders. I have a different question in mind, which I would ask. You have said that amnesty cannot be availed by anyone who has had held public office in the past 10 years. Now, if a public office holder has served an office where he had been allowed to make private investments, or any business activity of that kind, would the condition be the same for him, isnt any flexibility available for him? Dr Mohammad Iqbal Well, there is a full, comprehensive definition for it. When this scheme was introduced through an ordinance, the definition was there. And then when this was changed into an act, some further clarification was incorporated into it. I do not have the scheme with me right here, otherwise I would have told you the change. Those people who sit on the board of directors of any publicly-owned corporation but are not related to their management, like many state organisations we have. Sometimes, such directors are appointed from the private sector, who are not connected with the day-to-day running of the corporation. They just attend meetings comprising board of directors. Then in such situation, those people can avail the amnesty scheme. The whole purpose of all this is that anyone who has been dealing with public money in any form, the one who has had an opportunity to have misused the money, such individuals are kept out of the scheme. The concept and philosophy behind the scheme has been reinstated with the definition for public office holder. If any further clarification is needed, or there is any specific instance, then we can clarify that too. Mansoor Ali Khan Shahbaz Rana, I would also like to you to comment on the amnesty returns in this regard. What do you think is the appropriate way to dismiss the case for return? Can appeals be filed in such cases? Shahbaz Rana Well, there are two or three very important questions that need to be clarified by Dr Iqbal. One of the questions is that if you have given a specific form and then there is a mistake in that form can FBR scrap that form or the return? If FBR can scrap that then the filer, who has been filing that form, will he be given a second opportunity to file the form again? The second thing, which needs to be explained here, is that suppose I have already filed the form, then do I get the option to amend any mistake which I have made in the form? Dr Mohammad Iqbal Well, I must explain this thing first that in general, amnesties introduced in the past had forms that were rejected on the basis of valuation. For example, you have declared a home located in any city, then the scheme used to have a given mechanism for valuation, and in that there was a possibility of disputes as our officers would say that the valuation you have made is not reasonable, or that it should be different. So in order to make the current scheme successful, we have ensured that FBR does not have the discretion to determine valuation. The valuation would be taken as one declared by the filer. As for your second question, that is whether the law gives the filer the option to revise or amend his submitted forms, then the first thing to mention here is that the law does not have anything specifically related to it, whether a submitted form can be revised or amended. Normally, whenever we talk about revising any declaration, then the law does not specifically mention whether it can be revised or amended. Normally, when we talk about revision of a declaration, then the law gives a specific power for it. For example, if someone has to revise his income tax return, then the income tax law states that under specific situations income tax returns can be revised. Similarly, the law also states conditions in which wealth statements can be revised. Here, the related laws pertaining to revision are not given for amnesty declaration. So for, now we can only recommend whoever wishes to avail the amnesty scheme should be careful while filing their declaration and do it only once. But in situations like this, we do consider whether we can give provision for any revision or not. As of now, however, my understanding says that it cannot be revised. Mansoor Ali Khan So in this regard, we could have no appeal after June 30? No amendment can be made once the case is submitted. It does not have anything to do with the deadline, right? It does not matter whether it is prior to the deadline or after it, doesnt matter? Dr Mohammad Iqbal Yes, definitely. There is no point of a later on. If you cannot file a new declaration, then how would you be able to revise? But I am just saying that perhaps there is no chance of revision even before the due date. Mansoor Ali Khan There are some more scenarios in this case. Mr. Shabbar Zaidi will also enlighten us in this regard, asking him how he sees any such scenarios and particular situations and how they could be dealt with. We will discuss this after a small break. Viewers, welcome back after the break. We are talking about the tax amnesty scheme. FBR spokesperson Dr Muhammad Iqbal is here with us. He has been elaborating on different scenarios. Dr. Iqbal, there is an important point to discuss here, as previously talked about Panama papers. Now for example there is a trust, the beneficiaries of that trust do not even know when the funds of the trust would be transferred on their name, or when would they become the beneficiary of the trust. So in a situation like this, how can such a person drive benefit from the amnesty scheme? Dr Mohammad Iqbal First of all, allow me to comment on the point given by Mr. Shahbaz. I would like to further clarify it. The thing, as stated by Mr. Shabbar, is that these two laws regarding foreign amnesty and domestic amnesty have come through the Finance Act. In the Finance Act, there have also been amendments pertaining to Income Tax Ordinance, which deals with offshore taxation, an international aspect of taxation. So perhaps there is some confusion over here that we are trying to read all those things together. Basically, there have been some amendments in the Income Tax Law as well as Protection of Economic Reforms Act (PERA), 1992. The purpose of the amendments is that the government wants that the regime, which it presently sees is changed, especially the one related to flight of money. On one side, people are barred from taking money so freely, without having it declared and without any understandable reason. On the other side, we wanted to make a tighter regime as well as improve our detection abilities. If we have any such investments outside the country, they would come in our knowledge as well. So some of it is due to changes in international regime, and then we also place certain consequences for it. If someone takes the money out without declaring the income, then the new amendments will also apply to them. The amendments will impact those who still do not truthfully declare their assets making use of these schemes and driving benefit from them. My request is that the amendments made in the Income Tax Ordinance and Protection of Economic Reforms Act should not be seen as part of this scheme. That is a separate part of our overall efforts, which is directed to improve our taxation system. The first step in this regard is that people are given the opportunity to sort out their affairs and bring them in order. Those who still do not comply will be dealt by us. Mansoor Ali Khan Dr Iqbal, I want you to comment on the scenario which I am stating. Dr Mohammad Iqbal Sure, but in order to create understanding for the trust scenario, the scope of the income tax law must be clear first. We should be clear about the things, which our amnesty is covering. Basically, the income tax law states that if someone has made any form of investment, or he has assets or a record of expenditures for such, the source of which cannot be explained by him, then such concealments has some consequences. We would treat them as income and levy taxes on them. Such individual will also be liable for penalty. Now, basically the amnesty is given only for the condition where an individual has made any investment the source of which were not declared by him, then declare that investment and we will not ask about the source. So, for any amount for which a taxpayer or an individual is not liable in the first place, then he may not need to take any amnesty for it. Mansoor Ali Khan Dr Iqbal, my question remains that there is a beneficiary, who does not even know when the funds will be transferred to his name, or when he will get them. He is the beneficiary of that trust. Now in such a situation, how can he drive benefit from the given scheme? Can the benefit be driven in some future time or not? Dr Mohammad Iqbal Well, basically what I am trying to explain is that the amount, which has been invested by any individual, only that amount can be applicable for amnesty. If he has not invested any amount or that the investment belongs to any other person and he has been kept as a beneficiary for that person, then the question will be asked to the person who has actually made the investment. A person who has not made any investment does not fall in the radar; we are not even authorized to probe him. He had no liability of his own. Here, the amnesty could be availed by someone who has made any sort of investment. Even if he has made the investment in anyone elses name, he is still entitled for amnesty. Mansoor Ali Khan Mr Shabbar Zaidi, I would like you to contribute in this regard. Shabbar Zaidi Let me explain here that if you read the amnesty law, it clearly has a definition for foreign assets. In that definition, foreign assets include beneficial interest, or owner in a foreign entity or a trust. Now here, as per Pakistani law, trust is regarded as a company. Mr Iqbal has stated the exact thing that our amnesty is on the source of income rather than on the person holding the beneficial interest. Every trust has three types of people: trustee, settler and beneficiary. to the point page 20 to the point from page 13 So the settler who has paid the money will be the person who would declare the investment as his assets. If you read the amnesty scheme, it also states that contribution to a trust is also an asset. So if the declaration is in the name of the settler, the settler declares this as his assets. It is his own income until he transfers the same to the name of the beneficiary. However, if the settler does not disclose the same as his income, or when he is satisfied and that his share has been identified and then he says that he has no right on the investment, then the beneficiary can too declare the investments on his name. There is no confusion regarding it, you need to carefully read the law pertaining to trustee, settler and beneficiary. This matter is clearly covered in amnesty laws definition of foreign assets. Mansoor Ali Khan Dr Iqbal, since you are the spokesperson for FBR, dont you think whatever Shabbar Zaidi is saying has added clarity. Dont you think so? Dr Mohammad Iqbal You have raised this issue so I must state that that our FBR website has a section for frequently asked questions. It has already answers for some questions. And we will try that any issues identified here will be included there, so confusion, if any, will be completely removed. Mansoor Ali Khan Mr Shabaz Rana, in this regard it must be mentioned that there are a lot of trusts which exist in the form of offshore companies. Owners of those trusts frequently ask questions regarding this. They want to know how they can drive benefit from this amnesty scheme. So is it clear that the trustees or the operators of such trusts will consider this declaration as quite important and so they can take benefit from this scheme, but the beneficial owners, who are entitled for benefits in the future, can only capitalise on this scheme when they actually get the benefits of their trusts? (TRIBUNE NEWS)




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