Wednesday, January 04, 2012 -
From Print Edition
In the ‘new’ Pakistan that we hope to construct, and which Imran promises to deliver, can there be any room for tax cheats – past, present or future? Surely not! And least of all, amongst the very architects of change. There can be no ‘new’ Pakistan if this principle is even slightly compromised. This much is beyond negotiation.
That being so, I was a bit shaken to hear Imran inform us sometime back that he would be declaring his assets in a month or so. This of course he did, but I had thought that it should not take an honest taxpayer more than five minutes. Having paid my taxes diligently over the years, this is exactly the time I require – not only to disclose the exact current status of my very meagre assets but also the historical accumulation. Why then did it take the great Khan that long to compile simply a list of his assets?
Could Ch Nisar be right after all? I thought. He had alleged that Imran did not file any tax returns until the current millennium, and then too not accurately. I trusted he was wrong though. It cannot be that the Oxford educated Imran was so callous towards a critical national duty.
Imran however preferred to keep his silence than respond to the allegation – until the question was put to him point-blank in a recent TV interview (Jirga). He was asked to respond to the charge that though he started his professional career in the 1970s, he had not paid his taxes or filed returns. I would have instantly answered as follows: ‘absolutely wrong. I have been paying my taxes and filing my returns regularly and honestly and am able to present those to refute any suggestion to the contrary’. Imran responded differently: ‘The first thing is I was not in government. Two, my only income was from PCB and from county cricket, and tax was withheld by both at the time of payment.’
Well, I too am not in government and do feel stupid now (after hearing Imran) for paying taxes for over two decades. Should I be filing for refund? Perhaps best to wait until Imran heads the government. But let us in the meantime educate ourselves (and also Imran) on tax obligations. Imran may realise that things are a bit more serious than he thinks. To keep it simple, we shall consider the Income Tax Ordinance 1979 (which was operative until 2001 – i.e. the greater part of Imran’s career as a cricketer and beyond) and the Wealth Tax Act 1963 (which was only repealed in 2002).
Income Tax Ordinance 1979: This Ordinance created a distinction between individuals who were ‘resident’ in Pakistan and others who were not resident but earned income from a source in Pakistan. Anyone who spent an aggregate period of 182 days in Pakistan during the tax year, or even as little as 90 days provided he was in Pakistan for an aggregate period of 365 days over the previous four years, was treated as a resident. It is unimaginable that Imran (who played cricket for Pakistan, often participating in the domestic league as well, and was based in Lahore, where his parents lived) was not a resident in Pakistan – throughout the relevant period.
The Ordinance then required every person ‘resident’ in Pakistan to pay taxes on his worldwide income. This means that if Imran was resident in Pakistan during any of the years from 1979 to 2001 (the likelihood of course being that he was resident for tax purposes throughout this period), he was obligated to pay tax not just on income arising in Pakistan (e.g. payments received from PCB) but also income earned outside Pakistan (e.g. on account of county cricket). Under the Avoidance of Double Taxation Treaty between Pakistan and UK, he would have been given credit for tax paid in the UK, but subject to that even income earned in the UK needed to be disclosed in Pakistan and tax paid on it. It was not exempt.
Regarding the point that PCB (or its predecessor) used to withhold tax on payments made to Imran, one is not sure whether this was so, but even if tax was withheld, this was not final discharge of tax liability. The Ordinance in fact created different scales of tax liability. One needed to aggregate all the income from various sources, and then depending upon the scale one fell in, to pay additional tax over and above what may have been deducted at source.
In Imran’s case, he was required to aggregate his income from PCB, domestic cricket, county cricket, advertisements (remember Lipton, Pepsi, Wills etc.), interest income from bank accounts (unless of course he kept all his money in cash), the odd plot he got (which too would be considered income), any man of the match or man of the series awards from sponsors, and any other sources (such as income from commentating on cricket matches after retirement) to determine his final tax liability.
Besides, even if there was an odd year during which he may not have been resident in Pakistan for tax purposes, he was still required to pay tax in respect of income that ‘accrues or arises’ in Pakistan, after aggregating all such income. This alone would have been quite a handful, as listed above.
There was separately then the obligation to file tax returns. This applied even to non-residents who had a source of income in Pakistan. Indeed ‘every person’ whose total income exceeded the maximum amount not chargeable to tax, was required to do so. It cannot truly be Imran’s case that his total income fell below the taxable limit – throughout the relevant period at least. In any case, after 1997, even a person who may have fallen below the taxable limit but undertook foreign travel was required to file a return. (The only exception was individuals whose ‘entire total income’ came under the head ‘salary’ – but even they were required to file a certificate in prescribed form in place of the return together with a statement of wealth. Imran in any case fell outside this exception.)
One can therefore safely conclude that in the period between 1979 and 2001, Imran was liable to pay tax in Pakistan on income accruing in Pakistan and outside, and any tax that may have been withheld at source did not mean that additional tax was not payable. He was also obligated to file tax returns. The question of course is whether he did.
Wealth Tax Act 1963: Under this Act any ‘resident’ of Pakistan (defined as above) was required to disclose and to pay tax on the prescribed rate regarding all assets, including assets ‘located outside Pakistan’. Imran has admitted that he owned a flat in London. In fact one recalls that in the 1990s when Allan Lamb and Ian Botham had sued him for libel, he expressed concern that if he were to lose the case, he would have to sell the flat to pay the costs. So the flat was acquired a considerable time back. Imran was required to disclose this, and all his other assets, in wealth tax returns, and to pay wealth tax at the prescribed rates. Did he?
Imran seeks my vote on the basis that he stands for change. That he is clean, with zero tolerance for corruption of any and all kinds, which must of course include tax evasion. I take his call seriously but do feel entitled to ask him the following questions. I need to be reassured that he is ‘tax-clean’.
* When was the first time you filed an income tax return? Please give the exact year (or date, if possible).
* When was the first time you filed a wealth tax return? Again, please give the exact year (or date, if possible).
* In which years subsequent to the first, did you file income and wealth tax returns?
* When was the London flat acquired and was it and any other assets (such as bank accounts) outside Pakistan disclosed in the wealth tax return?
* Did you disclose to tax authorities in Pakistan income accruing outside Pakistan (e.g. on account of county cricket)? In which of the years was this done?
* Was income earned from advertisements disclosed in the tax returns? In which years?
Imran’s response may generate more questions but for the time being one does expect him to come clean on these.
Not that one can ever imagine Imran in breach of his tax obligations – not at all – but it is worth noting that ‘concealing’ income and wealth under the above statutes (failure to file obligatory returns does constitute concealment), is an offense ‘punishable with imprisonment for a term which may extend to five years, or with fine, or with both’. Indeed failure to file the requisite return alone is ‘punishable with imprisonment for a term which may extend to one year, or with fine, or with both’. Imran of course has announced that when he is the prime minister, anyone guilty of having violated the law (be it General Musharraf) would be punished strictly in accordance with law. One does therefore expect him to order revenue authorities to go after all tax cheats – no matter who they may be.
It is also worth noting what the Constitution of Pakistan tells us about tax cheats: ‘A person shall be disqualified from being elected a member of the parliament, if he has defaulted in payment of government dues in excess of ten thousand rupees, for over six months, at the time of filing his nomination papers’. Government dues of course include taxes. This provision may not have been enforced strictly in the past, however one expects Imran to change that as well. But we jump too far ahead of ourselves. For the present, I do eagerly await Imran’s clarification. Please not through a spokesperson of the PTI though – these are questions directed straight at you Mr Khan.
The writer is a Lahore-based lawyer. Email: salman [email protected]