The PTI government’s tax amnesty scheme has elicited mixed reactions from the business community. While one section of businesspeople has welcomed the scheme, others have expressed apprehensions about its implementations and implications.
Formulated after a great deal of discussions with the stakeholders, the amnesty scheme provides for whitening of undisclosed expenditures, sales and assets, including foreign assets, at nominal tax rates. The scheme has been enforced through a presidential ordinance, which stipulates a period of 45 days to people for declaration of their undeclared assets, expenditures, and sales along with payment of taxes until June 30 this year.
The scheme has five main sections – scope, default surcharge, exclusions, tax rates and conditions. There is no projection about revenue collection from the scheme since its main purpose is to bring the grey economy into the tax net.
The scheme is time-bound. All companies, associations of persons and individuals who want to whiten their assets, expenditures and sales not declared until June 30, 2018, must do so by this date.. There is no provision for whitening undeclared incomes both domestic and foreign.
The government has for the first time given another one-year time to people for payment of taxes with additional default surcharge rates on a quarterly basis until June 30, 2020. This facility will be available only to those people who will first declare their assets until June 30, 2019. Under the scheme, assets within the country and abroad (except for real estate) can be whitened at a rate of four per cent. The whitened cash assets will have to be kept in Pakistani bank accounts. But those who want to keep their whitened money abroad will have to pay at the rate of 6pc.
The tax rate will be 1.5pc for whitening of domestic immovable properties (real estate). In case of foreign assets, the fair market value will be determined at the exchange rate prevalent on the date of declaration. The tax rate on undisclosed sales or supplies is 2pc, which is also offered for the first time for bringing undeclared sales into the tax net. This will cover the sales or supplies chargeable to sales tax or federal excise duty, which has not been declared or has been under declared up to June 30, 2018. In case of late payment of taxes, the amount of tax will increase by a default surcharge of 10pc, 20pc, 30pc and 40pc for subsequent quarters respectively.
But the scope of the amnesty scheme is restricted. It cannot be availed by the holders of public office, including president, prime minister, chief ministers, governors, Chief Justice of Pakistan, judges, their spouses and dependent children and any public-listed or government-owned company. It will also not apply to gold and precious stones, bearer prize bonds, bearer securities, shares, certificates, bonds or any other bearer assets. This provision is targeted at those who amassed illegal wealth through corruption. So the scheme will not apply to any public office holder since May 15, 2009.
The scheme requires all persons availing the scheme to file income tax returns for the tax year 2018 or revised return, the financial statement and wealth statement. Under the scheme, the cash declared will have to be deposited into a bank account. The foreign currency held in Pakistan may be deposited into the declarant’s bank account. The amount will be retained in the bank account till June 30, 2019.Similarly, the foreign assets repatriated to Pakistan will be deposited into own bank Pak rupee account or foreign currency bank account in Pakistan or invested in Pakistan Banao certificate or foreign currency-denominated bonds. Similarly, the foreign liquid assets not repatriated to Pakistan will be deposited in declarant’s foreign bank account on or before June 30, 2019.
Explaining the main features of the scheme, Adviser of Finance Dr. Hafeez Sheikh said that the scheme was devised to document the economy and bring dead assets into circulation and make them functional. According to him, the idea behind the plan is not to intimidate people but to encourage businessmen to participate in the legal economy.
Although issued in consultation with the representatives of the Karachi Chamber of Commerce and Industry and trade bodies, the tax amnesty scheme has not met with very warm response from people. Many businessmen have welcomed the much-needed initiative to kick-start economic activities. However, others have voiced concern and urged the government to take concrete steps and adopt long-term policies to tackle the problem of black economy.
LCCI President Almas Hyder opined that the amnesty scheme would end the fear of tax authorities currently prevailing among the business community. But a former APTMA Punjab chairman did not sound optimistic about the results of the amnesty scheme. In his view there was no need for the amnesty scheme as under similar schemes in the past all businessmen who wanted to declare their hidden assets had already done so.
The previous amnesty schemes did not yield the desired results. In the next few weeks, it will be clear how the latest effort to uncover hidden assets fares.