Home Global Village PML-N’s ‘volatile’ amnesty scheme is here to stay for another month

PML-N’s ‘volatile’ amnesty scheme is here to stay for another month

News Analysis |

Deadline for amnesty scheme has been extended till 31st July allowing for a maximum number of people to take advantage and come into the tax basket. The extension was given through Presidential ordinance. The scheme is expected to generate revenue in both short and long term, compelling people to become taxpayers.

The scheme has undergone amendments since its initiation, through the Foreign Assets Declaration and Repatriation (Amendment) Ordinance, whereby, requiring a declaration of foreign assets and revenue. The scheme has said to have gathered 110 billion rupees in the first month of its implementation and is expected to draw in more in the following month.

It has been subject to criticism by opposition parties, but none have mentioned it during their campaigns. The scheme comes at a crucial time, as something needs to be done about the stagnant tax to GDP ratio.

Following the clarification, any claimed derived by a resident of Pakistan after July 1, 2017 or any foreign income earned by a non-resident Pakistani is not eligible to be declared under the scheme.

The Comprehensive Scheme

It makes things simpler by declaring Computerized National Identity Card as the national tax number (NTN). No penalty has been imposed and the rates have been kept as low as 2-5 percent of the declared assets. Specifically, domestic liquid assets can be declared at the tax rate of 5 percent, foreign cash assets at 2 percent and assets/fixed property abroad at 3 percent. Dollar accounts can be declared and kept abroad at 5 percent.

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Dollar account holders in Pakistan who have purchased dollars with undeclared funds can also seek regularization by paying a tax rate of 2 percent. Remittances less than $100,000 per year per person will continue to enjoy tax exemption and immunity from any questioning by any agency regarding the source of funds.

New foreign exchange accounts can now only be opened by tax filers. To avoid public dismay, holders of public office in the past decade, political as well as senior bureaucracy, have been specifically barred from the scheme.

The extension was given through Presidential ordinance. The scheme is expected to generate revenue in both short and long term, compelling people to become tax payers.

Finance Act 2018, has for the first time allowed people to declare foreign assets without the compulsion of repatriation. It is in contradiction with the amnesty scheme. The different treatment of foreign and domestic assets have been criticized.

Vide explanation, it has been clarified that in case of declaring remittance payment of tax or repatriation of cash to State Bank of Pakistan by July 31 this year, payments and declarations shall be treated as valid if the declarant has filed draft declaration, created PSID and has provided evidence to SBP that the payment was remitted on or before July 31, 2018.

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Valuation of Foreign Assets and other Amendments

The original foreign act prescribed the valuation of foreign assets to be the cost of acquisition at minimum. However, there are differing opinions with respect to exchange rates to be used for valuing such assets.

The amendment has brought a fundamental change and has inserted an explanation prescribing that the exchange rate prevailing on the day of declaration is to be used for the purpose of valuation of the foreign assets. They shall be valued in rupees.

Remittances less than $100,000 per year per person will continue to enjoy tax exemption and immunity from any questioning by any agency regarding the source of funds.

The amendment is in contradiction of provisions of section 5(2) read with section 2(d) of the original foreign assets act which defines fair market value as “Fair market value means price of foreign asset determined and declared by a declarant himself but in no case is less than the cost of acquisition of the foreign assets”.

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The amendment has clarified that the assets declared under the act shall be taken in the book of accounts for the tax year 2018. The amendment has added a new section, whereby, revision of already filed declarations may be filed by the due date. However, the revision is allowed only, where the value of asset and tax thereon is not less than the value of asset and tax thereon declared in the original declaration.

It has also been clarified that any income which was not required to be disclosed as of April 9, 2018 is not eligible to be claimed under the scheme. Following the clarification, any claimed derived by a resident of Pakistan after July 1, 2017 or any foreign income earned by a non-resident Pakistani is not eligible to be declared under the scheme.