Unconstitutional amnesties

Millions below the poverty line, small businesses and sectors badly affected have been ignored by the government of PTI in the very beginning of 2021

The Federal Board of Revenue (FBR) on the last day of 2020, without any legal instrument, issued a clarification that the last date of Prime Minister’s Construction Package had been extended. The Presidential Ordinance [The Income Tax (Amendment) Ordinance, 2021] to this effect was promulgated on January 20, 2021, just 48 hours before the start of National Assembly and Senate sessions, and with retrospective effect (January 1, 2021). The public announcement should have been made only after the law was passed according to the procedure provided in the Constitution of the Islamic Republic of Pakistan [“the Constitution”].

The FBR press release issued on December 31, claimed, “The last date for seeking immunity by builders and developers from probing their source of funds and availing fixed tax regime has been extended from 31st December 2020 to 30th June 2021. Similarly, the last date for builders and developers who want to avail fixed tax regime has been extended from 31st December 2020 to 31st December 2021. The last date for completion of projects has been extended from 30th September 2022 to 30th September 2023 and the last date for buyers of housing units and plots has been extended from 30th September 2022 to 30th March 2023.”

Before coming to power, the top leadership of Pakistan Tehreek-i-Insaf (PTI) was calling tax amnesties “immoral,” “undesirable,” “unlawful,” and a “slap in the face for honest taxpayers.” After coming into power, the prime minister took many U-turns. Arguably, the worst one was offering asset whitening schemes resulting in tax losses running into billions of rupees.

As many as 135 people, named in the Organisation for Economic Co-operation and Development (OECD) database, availed the 2018 tax amnesty scheme of the PML-N and declared Rs 62.4 billion in assets. They paid only Rs 2.9 billion, whereas, their actual liabilities could have been around Rs 43.7 billion. About 56 people, whose data was shared by the OECD, availed PTI’s tax amnesty scheme and declared Rs 31.8 billion worth of assets. They paid only Rs 1.7 billion and got a Rs 20.6 billion relief.

Muhammad Ashfaq, then director general of Directorate of International Taxes of the FBR and now Operations Member of the Internal Revenue Service (IRS), told the Standing Committee of National Assembly on November 7, 2019, that the total tax collection in 325 cases against $5.5 billion worth of foreign assets caught in the OECD web was only Rs 5.6 billion or 0.64 percent of the traced assets.

It was conceded by then FBR chairman, Syed Muhammad Shabbar Zaidi, who drafted and defended the PTI’s amnesty scheme and even praised the earlier one by the PML-N, that in the absence of these asset-whitening schemes, they could have recovered 70 percent of the value of concealed assets as per provisions of Income Tax Ordinance 2001. The law provides for maximum income tax of 35 percent along with a 100 percent penalty, bringing the total tax liability to 70 percent of the value of assets and a further amount of default surcharge that could have been negotiated for compounding of offence under Section 202 read with Section 192A of the Income Tax Ordinance, 2001 for concealment that provides a punishment of imprisonment for up to two years or with fine or both.

The PTI government had been proudly taking credit for receiving information about 152,000 bank accounts owned by 57,450 Pakistani nationals, having $7.5 billion in bank deposits. In fact, most of this information was received much before the PTI came into power. The tall claims of the premier, especially of reopening the cases of beneficiaries of asset whitening scheme of the PML-N were exposed when his government bypassed the parliament and notified its asset/income/expenditure whitening scheme — Assets Declaration Ordinance, 2019 — through a presidential ordinance on May 14, 2019. It was later made part of the Finance Act, 2019 that was unconstitutional in view of the judgment of the Supreme Court in Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt.) Ltd through its GM (Finance), Lahore etc. and others [(2016) 114 TAX 385 (SC Pak)] holding that such laws cannot be made part of a money bill not covered under Article 73(2) of the Constitution.

Asad Umar, now the minister for planning, development, reforms and special initiatives, according to a report, criticised the “idea of introducing amnesty schemes to enable citizens to whiten undisclosed assets”.

Ignoring the remarks of Asad Umar, the PTI government gave yet another amnesty to developers and builders and buyers through another presidential ordinance promulgated on April 17, 2020 and then made it part of the Finance Bill 2020, passed by the parliament in violation of Article 73(2) of the Constitution as elaborated by the Supreme Court in [(2016) 114 TAX 385 (SC Pak)]. It received the assent of the president on June 30, 2020.

It may be recalled that in the third quarter of Fiscal Year 2019, due to wrong tax policies of the government of the PTI in Finance Act 2019, according to a report, under former FBR chairman Shabbar Zaidi, construction sector witnessed a sharp contraction of 7.6 percent in FY19 following an 8.2 percent growth during FY18.

The prime minister, in a brief televised address on the last day of 2020, announced the extension of amnesty scheme whereas the actual law to this effect was passed twenty days later. Earlier, at a press conference on April 3, 2020, the prime minister had announced what he called a “comprehensive relief/stimulus package” for the construction sector.

The Association of Builders and Developers of Pakistan (ABAD) chairman, praised the tax incentives announced by Prime Minister Imran Khan as “a historic package for the construction industry of Pakistan.” He said, “this package will prove a turning point for the economy of Pakistan”. In a statement, he said that the ABAD had been demanding incentives for the construction sector “because more than 70 allied industries are depending on the construction sector.”

The premier said the government would provide a Rs 30 billion subsidy on the loan for markup for low-cost houses, with a maximum of 5 percent on five-marla houses and 7 percent on ten-marla houses. He also pledged to provide a grant of Rs 300,000 each for the construction of first 100,000 houses.

By December 31, 2020, 186 projects were registered with the FBR, while projects worth another Rs 116 billon were in the pipeline. Additionally, 163 projects were launched in the Punjab, whereas proposals for Rs 136 billion were in the process of approval.

The prime minister said that after the approval of foreclosure law, the banks would be extending loans for construction of houses for the low-income groups. He said, under the scheme, the banks would extend loans worth Rs 378 billion by December 2021.

The promulgation of Income Tax Amendment Ordinance 2021, extending amnesty for the rich and mighty developers and builders, who even after numerous amnesties, offered by successive governments in the past, cannot explain the sources of their investment, is lamentable, especially when workers engaged by the construction industry do not even get any kind of social protection. The needy in the wake of Covid-19 pandemic, millions below the poverty line, small businesses and badly affected sectors have been ignored by the PTI government in the very beginning of 2021 as no assistance/relief has been announced for them.

The writers, lawyers and authors, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)

PTI government's unconstitutional amnesties