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June 25, 2019

Tax amnesty scheme: It’s an opportunity for those who have benami properties

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June 25, 2019

Geo Special Transmission | Pakistan Kay Liay Kar Dalo | Part 01


ISLAMABAD: Adviser to PM on Finance Hafeez Shaikh has said that one of Pakistan’s persistent issues is the lowest collection of tax, while the tax revenue is 11 to 12 per cent of our total GDP and that is also the lowest in the region. He said it should be found out why the rich of the country are far behind in paying taxes and our requirement is to feed a swelling population with growing need of necessities. It is a densely populated country having 210 million people.

Speaking in Geo’s special transmission ‘Pakistan Keliye Kar Daalo’, he said that Pakistan needs a running economy, provision of infrastructure that also helps to provide jobs to the youth. He said the people should be given education, health and justice. He said self reliance will help improve the judiciary and maintain security.

The Adviser on Finance said that we should start collecting taxes and avoid being dependent on foreign loans. He said the government is eagerly trying to be self reliant and come out of the posture of being handicapped. He elaborated that Pakistan’s economy is mostly out of the tax net; for example, the people may have Benami properties in others' names and cash as well but now we are eliminating the Benami system.

Hafeez said the government wants to give an opportunity to those who have benami properties and accounts to legalise all those wealth properly prior to the action that will be taken according to the Benami law that allows confiscating all such properties and wealth. He said people could come into the tax net and get their money legalised. He said if one has cash, he can legalise his money only by paying four percent of the total Benami properties and accounts with the condition to put all their money into the bank.

The finance minister said the people could also get their properties legalised by just paying one and a half per cent of the total amount of the properties. He said the government wants to enhance the tax net and is also trying to ease the mechanism, so the people could come into the tax net and economic cycle could run.

Hamid Mir asked that most of the people were not registered with the FBR and they did not have NTNs, so could such a person be benefitted by the tax amnesty scheme.

Geo Special Transmission | Pakistan Kay Liay Kar Dalo | Part 02

Shabbar Zaidi said yes, it is possible to get benefitted by the tax amnesty scheme though they do not have NTN or not registered with the FBR. Zaidi said if anyone wants to declare their assets in Pakistan, he has to register with the FBR and to become a tax filer prior to declaring any assets.

Hamid Mir asked the people who have properties and wealth in the name of their servants, relatives and friends, if they want to declare everything voluntarily. Is there any chance to have action against them?

Shabbar Zaidi said that no action will be taken against anyone who wants to avail the amnesty scheme. He said that the people could declare their Benami accounts and no action would be taken against them. He said we have included two sections that no proceedings will be taken and confidentiality. He said assets scheme was launched in 2018 but the FBR did not take any action and stopped proceedings. "I can promise you all and if anyone has any problem related to this issue can come to me and we would certainly protect them."

Hamid Mir said only in the Pakistani gold market, there at least three tonnes of undeclared gold. Now our discussion may motivate them and they may come to declare the gold. Hafeez said that we have decided some fundamentals that if anyone would declare his wealth and make them white, their data will not be used against them, adding that surety has been given in writing so the people who wanted to make their money white should come without any worry. He said they should trust the government.

Hamid Mir said there was a man to whom at least four hundred vehicles are registered. Hafeez Shaikh said that the amnesty scheme is to bring people into the tax net. He said the government has the right to take action against those who do not pay their taxes despite all the opportunities.

The Chairman FBR, Shabbar Zaidi, said that Adil Farooqui had asked two different questions. He said since the scheme was launched, the under declared is concluded in the basic documents and in the law. He said it is not in favour of Mr. Farooqui, as if anyone has bought properties or other assets that is under declared, for example the market price of a building is Rs 50 million but the declared amount is 20 million, while he has to pay only four percent to legalise the properties. It would be positive not negative. To legalise under declared through amnesty is not negative and the law was made earlier not now.

Regarding the second question of Farooqui, Zaidi said he could understand that if the undervalued properties are under declared and there is a differential, so the capital gain tax will be imposed and if it will, then the rate of capital gain tax will be so high. He said the second question is not about amnesty but in the financial bill the time of taxability of capital gain is increased and he wants to reduce the timing.

Adviser on Finance Hafeez Sheikh said Adil Farooqui’s question started from Benami and came to the filer. He said every Pakistani has the right to declare his under declared assets or Benami accounts which he in the past did not declare but now wanted to declare. He said it is open to all Pakistanis if they have Benami accounts or under declared properties and not declared for any reason may have the chance to declare their properties or Benami accounts to make them legalised and can get into the tax net through the declaration.

Hamid Mir said there was a question that if anyone declared his assets, then he has to pay tax on it but he does not have any cash to pay such amount, then does he have an opportunity to pay the tax in installments.

Hafeez Sheikh said the installment process is also included in the scheme to facilitate people. People who have been complaining for not having time, the installment process is for them but they have to declare their Benami accounts. He said the declaration in which the immediate transfer of money is not involved, then one has the option.

The Adviser on Finance said if the remittances sent from the Pakistani diaspora have already been taxed, they will not be taxable in Pakistan. He said because they are already in the tax system, so the money is white. He said they are just earning money and saving them here without paying any tax.

Shabbar Zaidi said the overseas Pakistanis should not be worried about the scheme but those whose income is chargeable tax in Pakistan and they did not pay the tax.

Hafeez Sheikh said for example if a Pakistani earned money here in Pakistan without paying tax and went to England and now having one million pounds and wants to legalise his money, he can avail the amnesty scheme.

Chairman FBR Shabbar Zaidi said if the plot is older than three years, it is not taxable if it is sold. The question is the apparent value of the property in Pakistan is always less than the fair value. Actually he must have paid Rs10 million but the plot must have been registered at Rs50 lakh. Technically, this Rs50 lakh is not white. We have included a condition that by paying 1.5 per cent over the difference between the actual and the fair value, it can have the fair value. The other condition would be that when the property is sold, the amount of capital gains would be less, but then there is no compulsion there.

Shabbar Zaidi said nothing for the custom paid but it will be for the car that was not declared. One will have the amnesty if it is custom paid but not declared, but nothing for smuggled car or for the one that has been illegally imported.

Hafeez Shaikh said this condition would help bring cash to the bank and it was not there in the previous amnesty schemes. The previous schemes benefited people who would cite any amount and whiten all their future income too and got exempted from tax. The reduced generation of tax amount this year is because during the last year’s amnesty scheme, people whitened their future income and got exemptions on tax. It would be fair for the people of Pakistan that everyone is confident that the amount being deposited in the bank accounts are the actual assets which are being whitened and that may not hurt our next year’s revenues.

Shabbar Zaidi said I have said that before and want to express it again if someone benefitted from the last amnesty scheme and there were no proceedings against it, if there is a complaint I will take action. But I know myself that no action was taken against anyone’s declaration. Shabbar Zaidi: The first question is correct. Its gain will be Rs10, will be as much as value addition allowed. The answer to second question is generally judication law comes in the first year.

This government has given that in the first year and this is the last scheme.Shabbar Zaidi: We had the choice to do it manually but by doing that the secrecy would have been lost.

Shabbar Zaidi: About the portal. Portal could be indicative. If the opportunity is missed or not, the portal is indicative. We have done it through computer system so even we do not know who is filing unless we see. We are maintaining secrecy so that it is done through a computerised system so a person could not know.

Abdul Hafeez Shaikh: The exporters will not be taxed. But if someone is selling their products in Pakistan, like garments being sold in Pakistan, that would be taxed. Our assessment is that garments worth Rs1,200 billion are sold in the domestic market generating only Rs7 billion tax, which is not acceptable to us. We are re-emphasizing that the exporter will not be taxed irrespective of the volume and we will assist him. We are subsidising power, gas and even loans for them and are not taxing their exports at all as they are very valuable to us. But our goal is to increase the revenue and we need your help for that as this small tax amount from domestic sales is not acceptable to us. As per their argument that the refunds might not get stuck up again, I and my team have made a commitment with them that as the budget is passed on June 29th, we will hold meetings with them and devise an automated system like in Bangladesh or China. Through the automated system, you will get a major amount from your bank or the State Bank and would not be dependent on the FBR. Allow us the opportunity to run this system and if it does not work, we will re-assess it in 3-6 month period.

Hafiz Shaikh: We have two important foundation points to increase revenue and exports and we will move ahead with the businessmen. On exports, I want to clarify that we are not taxing them. A deliberate impression is being created that exports are being taxed that is not the case. The concern that the sales tax refund will increase and will get blocked and the liquidity of the businessman will get stuck up is not acceptable to us either and we will not let that happen. “I believe that we have to work together to resolve it and if it is not addressed, then it will remain a permanent excuse and how would we be able to increase the revenues.”

Shabbar Zaidi: When we are going towards a general grade system where all products will have a 70 per cent rate. If we keep a separate rate for export industries, it will disturb the whole system as it does not only include cotton but that item would be used more and that would be abused as well. As Hafiz Shaikh explained the issue of domestic sales, it is taxable, so the input of the local sales is also abused against exports. These are some of the issues because of which Hafiz Shaikh has made a commitment that if the refunds are not managed through the automated system, then we will reassess it.

Shabbar Zaidi: I must add that neither a listed company can come nor a public listed can, but a non listed can come.

Shabbar Zaidi: He should be worried. See under the American system if the income is not declared in America and it has gone from Pakistan and the source could not be justified in America, then the American law is very stern about it. He can be asked many things in America if the money has come from Pakistan and has not been declared in Pakistan. England introduced an unexplained assets order which meant that if in UK a person does not identify the source, the government can confiscate the assets. For the case of San Francisco, if the amount has been earned in the US and declared there, I have no concern. But if the money has been taken from Pakistan and that was not declared in Pakistan and the American source is also not his, then has not other option but to declare it. Hafiz Shaikh: If someone has a property worth Rs10 million, he can pay a tax of Rs 1.5 lac and live comfortably and if one evades that amount of tax and remains under a constant stress that his whole property could be forfeited.

Shabbar Zaidi: I want to explain the difference between the assets amnesty scheme and assets declaration scheme. The amnesty scheme provides immunity from the income tax ordinance offering exemption under income tax ordinance. This other law is assets declaration law, which is a different law which does not only include income tax but also all other laws, including FIA, Foreign Exchange and other laws. If a person fraudulently takes money to Dubai or elsewhere, he would also be covered under it. People are not understanding this if that amount is declared, it is bigger than amnesty scheme and covers both the default of foreign exchange and that of the FIA.

Hafiz Shaikh: It is our endeavour to provide the largest share to Balochistan on the basis of its resources and proportionately it should be given the largest share in the development programmes as well. But the banking sector in that province has certain weaknesses. I would like my friend to come and would arrange his meetings with Governor State Bank. If National Bank and other banks need to open more branches in Balochistan, I am ready for that so their quality and financial intermediation should not be less than Punjab or any other province.

Speaking in the programme, Minister of State for Revenue Hammad Azhar said it had clearly been mentioned in the Assets Declaration Ordinance, 2019 that whatever assets would be declared under the law would never be presented in any court of law or any other forum as evidence against those declaring their assets. And as a precautionary measure, this data would also be secured in the Federal Board of Revenue (FBR). That means that data would not be available to the FBR officers in future.

He said there were some faults in the amnesty scheme, announced by the previous government: There was no need to present your cash in the banks for seeking amnesty; no ‘benami’ laws were in place before launch of the current assets declaration scheme; however, it was ensured that the data of those availing the amnesty was secured and they were not harassed by any official of the FBR or any other government agency.

The state minister said when he came to know that the FIA had a list of Pakistanis having properties abroad, the Agency top officials were directed to make sure that those availing the amnesty scheme, or those who had mentioned their properties in the tax returns, were not harassed. He said he was giving an assurance to those intending to declare their assets under the current scheme that they would never face any difficulty in future due to this sharing of the data with the FBR.

Hammad said the FBR officials’ right to conduct raids on properties would also be regulated when the amendments become stable after passage of some time.

He said the market rates of immoveable properties i.e. real estate have mostly been higher that the DC rates. Now the government was re-evaluating the properties and issuing new DC rates. If someone wanted to re-evaluate his/her properties and declare in under the assets declaration scheme, they could do so for their own benefit. However, is they did not do so, the government would not go after them.

The state minister for revenue made it clear that assets declaration scheme was not aimed at generating revenue but broadening the tax base. He said during the past 10 months of the PTI governments, four new things have happened:-

a. Benami laws have become functional, which authorise the government to seize any benami properties fully. One holder of benami accounts and properties may also be awarded seven years imprisonment. But we did not want to harm anybody financially, hence an easy and simple way out for such people who have secret assets and properties. This is not peculiar to Pakistan; wherever the benami laws are made functional, once such way out and facility is provided to them.

b. The previous two governments made claims that the process of data integration of businesspeople was under way, but it was never done. However, the PTI government got it done in just 10 months. Now anybody could see for himself his complete data/information by visiting the FBR website. The data provides complete details like bank accounts, utilities, travel history, property details. Now each and every information about such people is available with the government.

c. The property valuation had not been revised for years. Anyone buying a property was forced to make his white money black while purchasing properties on higher rates but declaring it on lower (DC) rates. However, now the government has brought the DC rates almost closer to the market rates of properties.

d. The PTI government has secured Pakistanis’ offshore accounts complete data. It consists of 152,000 offshore accounts in 28 countries of the world, and 10 more countries would soon share such data with the government.

Hammad Azhar said that in the past, it had been a practice that people used to bring costly non-Custom paid vehicles to the country and wait for announcement of an amnesty scheme. When such scheme was announced, they used to declare them and then again bring more such vehicles in the country. But, added the minister, “I wanted warn all such people that it was the first and last such scheme of the PTI government.”

The state minister firmly said that extension in assets declaration date would not be possible at all. The scheme has been in place for the last one-and-a-half months and there’s still one week to go. The process for declaring assets online is very simple and easy. Also, the FBR offices and the State Bank of Pakistan and other banks would remain open even on Saturdays and Sundays to facilitate people, he added. Even people do not need help of any tax lawyers, and they could compete the process in a few hours by visiting the FBR website themselves, added the minister.

Hammad Azhar said the assets declaration scheme wanted people to convert their undeclared assets into cash and declare them by presenting them in banks. It wants to bring all such assets into circulation, as the scheme is aimed at documenting the economy and not revenue generation. The government has not allowed presentation of personal gold or bearer bonds for assets declaration scheme. If somebody claims that he has such and such quantity of gold at his home, the government could not verify it. However, he added that the person who says he has three tonnes of gold, he could declare it under the scheme. He could also present it as stocking trade, and mostly such people could be gold traders.

The minister regretted that business firms and individuals maintain two books at a time; one showing actual data, and the other for consumption of the government tax authorities. However, he added, now this practice would have to be brought to an end, and firms would have to present their original data and pay full taxes now. The government has complete data, it has more functional laws and a political will to implement these laws. The government has technology which would help people force their due taxes, he added.

Hammad Azhar said those would be real unfortunate people who would not benefit from the current scheme. After expiry of the date, the government would seize all benami properties and send those deceiving the government to jails. The PTI government would enhance its tax-to-GDP ratio from two per cent to three/four per cent during the next three years. And all measures would be taken for the purpose, he added.

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