All on board: PM Abbasi discussed tax amnesty scheme with CJP Nisar, COAS Bajwa

ISLAMABAD: The president on Sunday night promulgated four ordinances for making amnesty scheme for foreign and local assets effective as well as reduction in income tax rates and property tax.

It has been revealed that Prime Minister Shahid Khaqan Abbasi took on board all the key stakeholders, including Chief Justice of Pakistan (CJP) Saqib Nisar and Chief of the Army Staff (COAS) General Qamar Javed Bajwa before the launch of what is termed as historic tax reforms agenda.

According to ordinances issued by the president, the liquid foreign assets, not repatriated, will have five percent tax, immovable assets outside Pakistan three percent tax, and liquid assets repatriated and invested in government securities up to five years in US dollar denominated bonds with six month payment profit rate in rupees (rate of return 3 percent) with tax rate of two percent will be whitened. Confidentiality will be ensured and the amnesty scheme will remain applicable up to June 30, 2018.

For domestic amnesty, foreign currency held in a foreign account in Pakistan will be whitened at tax rate of two percent. For the purpose of this ordinance, the valuation of assets declared shall be made available to open plots and land for which cost of acquisition or FBR rates whichever is higher will be applicable, for super structure the valuation rate will be Rs400 per square feet, apartment and flats for which the cost of acquisition or provincial stamp. duty rates, whichever is higher.

Imported motor vehicle for which valuation will include CIF value plus amount of all charges including taxes and registration fees plus a sum equal to 10 percent of each year and maximum up to 5 years, motor vehicle purchased from manufacturer or local assembler here in Pakistan for which the price paid by purchaser including all taxes and for used vehicles purchased locally. The amnesty will be available on gold, government security, national savings bonds, other precious stones, metals, stocks in trade, plant and machinery, prize bonds etc.

The presidential ordinance also reduced the rate of income tax and allowed zero tax up to annual income of Rs1.2 million. Informed government sources said that not only the prime minister discussed his tax reforms agenda with the CJP during their recent interaction but he had also taken the Army Chief into confidence. Other stakeholders including the business community, leading tax experts and economists were also consulted.

These sources, however, said that certain elements in the Federal Board of Revenue (FBR) are really upset with these reforms, announced by the prime minister last week, and are trying to sabotage the move by feeding wrong information to media.

These sources said that during his months long deliberation on the subject, the prime minister faced resistance from anti-reforms elements within the FBR, who do not want an end to the present tax system of harassment, corruption and massive tax evasion.

Instead of burdening the salaried class, these sources said the government had now taken a paradigm shift in the tax strategy, which had lessened the tax burden on the salaried class but paved the way for broadening of tax net in the country.

These tax reforms, it is said, will limit the discretionary powers of the tax man and check the chances of harassment of the taxpayers. These sources said that although the media is presently focusing on the issue of amnesty scheme, in actual these are the tax reforms which will massively change the culture of tax evasion and help broaden the tax net.

Now instead of facilitating tax evasion through DC rate, the taxpayer is allowed to register a property on his choice rate which, if is really undeclared, would be purchased by the government with double the price declared. This, on one hand, will check the prevalent officially-facilitated system of under declaration through DC rates for tax evasion and whitening of the black money. On the other, the tax man will have less room to harass a taxpayer or get into corruption.

Pakistan’s tax to GDP ratio fell to 12.5 percent in fiscal year 2016/2017 despite improvement in revenue collection during recent years. The State Bank of Pakistan in its annual report on State of Economy last year had said that the tax and administrative reforms implemented during the last a few years led the growth in tax collection to remain consistently higher than the growth in nominal GDP.

This resulted in the tax-to-GDP ratio rising to 12.6 percent in FY16 from the low of 9.3 percent in FY11. This performance, however, could not be sustained in FY17. “Despite the improvement in recent years, Pakistan’s tax-to-GDP ratio still remains one of the lowest in the region, only better than Bangladesh’s,” SBP said.

Notwithstanding the improvement in general economic activity, the-tax to-GDP ratio fell to 12.5 percent in FY17 from 12.6 percent in FY16.

The holders of public office has been barred to avail the amnesty scheme and the ordinance explains that the holder of public office means a person who is or has been at any time since January 1, 2000 the holder of public office. They include the President or Governor, the Prime Minister, Chairman Senate, Speaker of National Assembly, Deputy Chairman Senate, Deputy Speaker National Assembly, Federal Minister, Minister of State, Attorney General of Pakistan and other Law Officers appointed under the Central Law Officers Ordinance 1970, Advisor or Consultant or Special Assistant to PM and holds or held a post or office with rank or status of federal minister or minister of state, federal parliamentary secretary, member of Parliament, Auditor General of Pakistan, Political Secretary; Chief Minister, Speaker Provincial Assembly, Deputy Speaker Provincial Assembly, Provincial Minister, Advisor or Consultant or Special Assistant to the Chief Minister who holds or held a post or office with the rank or status of Provincial Minister, Provincial Parliamentary Secretary, Member of Provincial Assembly, Advocate General of a province including additional advocate General and Assistant Advocate General, Political Secretary; the Chief Justice or as the case may be a judge of the Supreme Court, Federal Shariat Court, a high court or judicial officer whether exercising judicial or other functions or chairman or member of a Law Commission, Chairman or Member of the Council of Islamic Ideology; holding an office or post in the service of Pakistan or any service in connection with the affairs of Federation, or service in connection with the affairs of provinces or a local council, the chairman and mayor or voice chairman or deputy mayor of zila council, a municipal committee and the respective councilors.