2012

INSAF PROFESSIONALS FORUM BY SALMAN RAZA

IPF-SINDHS VIEW ON THE TAX AMNESTY SCHEME

www.insafproforum.com

IPF-SINDHS VIEW ON THE TAX AMNESTY 2012 SCHEME

Highlights
The first amnesty scheme will be called Tax Registration Scheme Any person not availing the amnesty scheme will be liable to suspension of CNIC The Investment Tax Scheme will apply on undisclosed income

Details
Presidential Ordinance, introducing two amnesty schemes, will help whiten the undisclosed income or assets by paying 0.7 percent on cash in bank accounts, 0.9 percent on cash other than bank accounts and one percent on moveable or immoveable assets, sources said on Thursday. A draft copy of the proposed ordinance, prepared by the Federal Board of Revenue (FBR), revealed that it was proposed that any person who does not avail the amnesty scheme would be liable to suspension of his / her computerized national identity card (CNIC) number, placement of his name on the exit control list (ECL) and finalization of provisional assessment under Section 122C and all the provisions of the Income Tax Ordinance 2001 would apply accordingly. The first amnesty scheme will be called Tax Registration Scheme (TRS 2012) and will apply on unregistered non-filers and registered individuals who have not filed their returns of income for the preceding three years. The FBR proposed that availing TRS would be payable from October to December 2012 at proposed amounts of Rs 39,000 for October, Rs 49,000 for November and Rs 59,000 for December, depending on the category persons determined on the basis of information available with the National Database Registration Authority (NADRA) and FBR, keeping in view the number of foreign travels, residence in expensive localities, ownership of immoveable and moveable assets, etc. There will be three categories titled gold, silver and bronze for paying Rs39,000, Rs49,000 and Rs59,000, respectively. A person objecting the category in which he has been placed may file an appeal before the Inland Revenue concerned who would dispose of the same within days of its receipt. For the subsequent four years, the person availing the TRS would have the option to discharge their tax obligations by paying an amount higher by 10 percent than the amount paid in the preceding year. The FBR will also propose immunity under Section 120B (3) (b) stating that where the taxpayer has paid tax in accordance with the amnesty scheme, he would not be
IPF-SINDH Page 1

IPF-SINDHS VIEW ON THE TAX AMNESTY 2012 SCHEME

liable to any further tax, charge, levy, penalty or prosecution under the Income Tax Ordinance 2001 other than the tax on demand under Section 111. A person opts to avail the amnesty scheme would be required to pay the amount of registration tax in any designated branch of a scheduled bank after producing CNIC at the special counter for this purpose. The bank would issue receipt and the national tax number (NTN) to the person. For Investment Tax Scheme 2012, in exercise of the powers conferred under Section 120A of the Income Tax Ordinance 2001, the FBR will introduce the scheme for declaration of undisclosed or unexplained income and moveable / immoveable assets and payment of the investment tax. This scheme would be called Investment Tax Scheme (ITS) 2012 and will apply on undisclosed income and such income is pending proceedings where the Income Tax Commissioner has issued a notice to the taxpayer under Section 114, 116, 121, 122C, 177 or 221 before the filing of the return under this scheme in relation to an audit or any investigation under the ordinance regarding undisclosed or unexplained income or assets acquired from such income, which was chargeable to tax under the proposed ordinance.

The proposed ITS 2012 would apply to all taxpayers registered under the Voluntary Tax Registration Scheme. The existing taxpayers can also avail the scheme by filing their declarations if the tax paid by them on the basis of income declared for the tax year 2012 is equal to or exceeds the registration tax payable under the Tax Registration Scheme. Where the tax on undisclosed income was paid in accordance with this scheme, he would be entitled to incorporate such income in his books of accounts. No depreciation allowance in respect of building, plant and machinery or other depreciable assets declared under the scheme would be admissible for any tax year prior to the tax year commencing on or before first day of July 2011.

IPFs CONCERN
Such ordinances in the past too have proved that they are nothing but an exercise in futility. They have failed to encourage people to register with tax authorities. Much vigorous exercise similar to this was conducted in year 2000 to broaden the tax base but did not yield any result. Even wealth earned through criminal resources may also be legalized this way. This is an incentive to steal and then give away part of the looted wealth to government to be called an honest taxpayer.

IPF-SINDH

Page 2

IPF-SINDHS VIEW ON THE TAX AMNESTY 2012 SCHEME

Our neighbor India had tried to implement this scheme in 2011 and that too for bringing in foreign exchange hidden in Swiss Banks and off-shore companies incorporated in relaxed regulatory places such as British Virgin Islands, Cayman Islands, and Luxembourg etc. The feature of the scheme provided little discount on account of tax liability but provided immunity from prosecution. The backlash from opposition parties in the parliament was so severe that the government was forced to curtail the discount on tax liability. As per the article of Afshan Subohi in Dawn (Economic and Business Review) dated October 30, 2012 the size of sacrificial market has increased from Rs.360 billion in 2011 to Rs.450 billion in 2012. Even the thinnest large animal i.e. cows, culls and camels costs nothing less than Rs.150,000 and goes up to Rs 4 million. The buyers of such animals are not middle class Pakistanis but rich and affluent people from both rural as well as urban areas. It is clear that there has been an increase of Rs.90 billion in the absolutely undocumented sector of the economy. Whilst, the extortion mafia continues to demonstrate its well knitted structure in terms of Bhatta-collection with all the internal control and audit procedures such as slips in place for its agents to monitor the movement of animals, it is too hard for the government to tax this section of economy and it instead resorts to measures such as tax amnesty schemes to broaden the tax base.

The era of Tax Amnesty Schemes offering discounts is now over and in todays technologically advanced environment tracking sources of income and assets is easier than it was ever before. In Pakistan too, we have organizations such as NADRA and PRAL (Pakistan Revenue Automation Limited) which can help a great deal in bringing the tax evaders in tax net. For people who are willing to declare their assets honestly the only concession possible can be immunity from prosecution. Such amazing discounts of tax liability will serve as a disincentive for existing tax payers who would then prefer to evade and then avail discount rather than paying directly.

IPF-SINDH

Page 3