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Thursday March 28, 2024

Tax exemptions for elite ought to go

Tax Reform Commission for abolishment of tax exemption on leave encashment of armed forces members and government employees, income of charities barring some; retention of some exemptions for pension, gratuity, etc, for newspaper employees; seizure of property in Pakistan if an officer has ‘reason to believe’ that somebody is involved in black money business abroad

By Mehtab Haider
May 05, 2015
ISLAMABAD: The Tax Reform Commission (TRC) has recommended the government to abolish income tax exemptions on residence and other prerequisites to President of Pakistan, federal ministers, judges of superior courts, provincial governors, chiefs of staff and corps commanders in the coming budget 2015-16.
According to interim report finalised by TRC, a copy of which is available with The News, the Commission has asked the government to abolish tax exemptions on allowances and prerequisites of the aforementioned personalities.
In another major recommendation, the TRC suggested the government abolish tax exemption on encashment of leave preparatory to retirement of members of Armed Forces or government employees.The Commission asks the government to reduce tax rate to 2.5 percent in case of supply of locally produced motor cars.
It said tax exemption on income of certain charitable and other organisation needs to be abolished and cited that there was need to delete exemption for Liaqat National Hospital Association and exemption to Microfinance Bank.
It said tax exemptions on dividends from Pak Libya Holding Company, Pak Kuwait Investment Company, from agriculture income, gains on transfer of member rights by a member of existing stock exchange, income from transport business in Azad Kashmir, profits and income derived by taxpayers in KP, Fata and Pata need to be abolished.
The TRC also recommended retention of certain exemptions such as related to pension, commutation, gratuity, workers welfare fund, provident funds, benevolent fund and local travelling allowance for newspapers employees etc.
The Commission asked the government to retain exemptions on donation to certain institutions, donations to victims of terrorist attacks, flood relief funds and funds for IDPs, donation to research on Islamic history, interest on foreign currency accounts and many others.
It said the Foreign Exchange Regulation Act [Fera] needs to be amended in order to get hold of the black money held abroad. A new section is proposed to be inserted in the subject of “assets held outside Pakistan in contravention of Fera”. 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.
When a person is holding assets in a tax haven in violation of Fera and “Tax Haven Government” and its banks may not co-operate, the enforcement officer will have the power to seize Pakistani assets.
This power of seizure under Fera is in addition to the penal action under Income tax Ordinance 2001 and penal action under FERA. This provision is drastic. It provides that if the authorised officer has “reason to believe” that the foreign asset is “suspected to have been held in contravention of Fera …” the consequences of seizure will follow.
Experts say 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, they said. 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 not 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, they said.
The provisions of Anti-Money Laundering Act 2010 are far more stringent than 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 Fera, there is no such provision additionally under the Income tax Ordinance 2001.