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Pakistan PM Announces Tax Amnesty Scheme

 

Prime Minister Shahid Khaqan Abbasi, after a meeting of the Economic Advisory Council, announced tax reforms aimed at clamping down on tax evaders. Building his case for the government's new package, the prime minister noted that only 1.2 million Pakistanis file income tax returns. He further noted that of the 1.2m filers, only 700,000 actually paid tax, while others filed returns but paid no income tax. Presenting his package as an incentive for more people to enter the tax net, PM Abbasi stressed that he felt this to be the most optimum way to maximise the government's revenues keeping in mind the significant challenges it faces.
 
PM Abbasi's Five-Point Tax Reforms Package :
 
1. Income tax brackets and percentages to be revised. Complete tax exemption on annual income up to Rs1.2m; maximum percentage of 15pc to be levied on income above Rs4.8m per annum.
 
2. Undeclared assets held locally or abroad to be declared after payment of nominal penalties. Those who avail scheme shall be  granted one-time exemption from accountability laws.
 
3. Tax to be collected on all property transactions to be made uniform. Govt will have the right to purchase any property by paying 100pc over and above its declared value within six months of its registration.
 
4. Government to monitor citizens' financial records and issue notices if they find evidence of tax evasion. Penalties will  be decided in parliament.
 
5. The government previously used 12 tax brackets for salaried individuals and eight for self-employed individuals to calculate their income tax liabilities. These have now been simplified to four.
 
6. Income tax has been reduced to make tax payment more sustainable. At the moment, the [maximum income] tax percentage stands at about 30 per cent.  It has been  decided to bring that percentage down drastically. People who make less than Rs.100,000 will now be exempt from paying taxes. For comparison, the previous maximum income exempt from income tax was Rs.400000. An individual making Rs.100000 a month was expected to pay Rs.4,958.33 in taxes ( Rs59,500 per year). People who make between Rs.1.2m to Rs. 2.4m will be liable to pay five per cent in income tax. The income tax for the Rs2.4-Rs4.8m bracket will be 10pc.Those earning over Rs4.8m annually will be liable to pay 15 percent tax on their income. 
 
Amnesty Scheme:
 
A tax amnesty scheme is being introduced through these reforms, under which people with undeclared income earned before June 30, 2017 on assets within the country will be able to bring them in the tax net by simply paying a five per cent penalty. People who hold undocumented assets outside the country will also be able to declare them through the new amnesty scheme. Foreign exchange could be brought back to the country by paying a 2pc penalty. Fixed assets will incur a 3pc penalty, to be evaluated at the market value of the asset, which cannot be less than the cost of its acquisition. Foreign liquid assets like cash, securities and bonds held abroad and in local dollar accounts may be declared with a 5pc penalty. Dollar account holders in Pakistan who have purchased dollars with undeclared funds can also regularise them on 2pc payment. Further, all remittances less than $100,000 per year per person will continue without any questions from any agency about the source of funds and enjoy tax exemption. All remittances greater than that amount will enjoy tax exemption, but may be scrutinised by the Federal Board of Revenue.
 
Furthermore, any new foreign exchange accounts can only be opened by tax filers. People who take part in the amnesty scheme will be given a one-time exemption from accountability and other laws. However, he stressed that politically exposed persons and their families will not be able to avail the amnesty scheme.
 
Property Tax Reforms :
 
On any property that a citizen purchases, they will have to pay a one per cent 'presumptive tax'. That tax will be adjusted in their annual taxes. Maximum 1pc tax (local and provincial) for registration of property being recommended. The FBR rate on property being abolished from 1st July 2018 and provinces being requested to abolish the DC rate. No purchase of property over Rs4 million is possible for non-filers of tax returns from July 1, 2018.The government now holds the right to buy any property that a citizen holds by paying 100 per cent over its declared price. This will hold for six months from the registration of the property starting fiscal 2019.The rate will fall to 75pc in fiscal 2020, and 50pc in fiscal 2021 to disincentivise under reporting.
 
Monitoring and compliance :

The government will now monitor all financial transactions that citizens make so that they do not evade tax. The government will send notices to non tax-paying citizens who are found to have made transactions beyond their stated income and ask them to explain their financial situation. We do not want to send the police to anyone's home or alert the Federal Board of Revenue, but our citizens need to be responsible and pay their taxes.
 
Further Deliberations:
 
The reasons for previous amnesty schemes are before you. However, there is only one reason behind this scheme: that is, to bring people of this country into our tax net. On being asked how many tax payers he thinks Pakistan should have at the conclusion of his scheme, PM Abbasi responded: "I believe that if future governments diligently follow this process they will find at least 30 million tax payers in the country. This is my calculation. In response to another question asking him why he did not consult parliament, he said , we have used our executive powers to introduce these reforms. I don't think anyone will disagree and say that there should be no taxes in this country, or that the tax rate should not be lowered here. If someone does disagree with the reforms, they can challenge it in court and then the court can rule on these reforms as it sees fit. We will use the cover of the law and parliamentary process to close any loopholes that exist in this scheme. The parliament will also be responsible to create the laws that will decide punishments for various forms of tax evasion.

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This blog is Created by CA Anil Kumar Jain.