In Pakistan, millions of mobile users [total subscribers as on August 31, 2015, according to Pakistan Telecommunication Authority, were 118,943,600] pay income tax in advance but less than one million file returns. A decade back, total return filers were nearly 2 million. Almost one million have vanished from filers’ list. The vast majority of persons subjected to withholding taxes refrain from filing tax returns due to fear of highhandedness of tax machinery or exploitation by unscrupulous tax advisers.

It is also a matter of record that a number of tax officials are engaged in "tax practice" and they assure non-filers that they would get no notice for non-compliance. Few months back, at a pre-budget seminar, the Chairman of Federal Board of Revenue (FBR) reminded the tax advisers of their national duty to motivate people towards filing returns and discharging tax obligations diligently, but he conveniently ignored the question posed to him as to what measures he had taken to check the FBR’s staff’s indulgence in the malpractice of discouraging people from filing returns.

The FBR Chairman is fully cognizant of the fact that millions of dollars are smuggled out daily from our airports, yet no effort has been made to counter these illegal outflows -- obviously it is not possible without the connivance of Customs staff working under his control. It is also an admitted fact that billions are lost due to corruption and weak enforcement. Only a fraction of government servants file tax returns and the FBR remains a silent spectator.

The FBR has even failed to compel the government departments to fulfil their duties as withholding agents. It, thus, keeps on targeting compliant taxpayers. Tall claims were made by the finance minister and chairman FBR to recover untaxed money stashed abroad, but till today not a single penny has been recovered. Near home, the Indian government, in order to fulfill its commitment made to the people, presented on March 20, 2015 the ‘Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015’, which was adopted readily by the Indian Parliament. This law provides for separate taxation of any undisclosed foreign income and assets. The salient features of this law are as under:-

Scope -- The Act applies to all persons resident in India. Provisions of the Act are applicable to both undisclosed foreign income and assets (including financial interest in any entity).

Rate of tax -- Undisclosed foreign income or assets is made liable to be taxed at the flat rate of 30 per cent. No exemption or deduction or set off of any carried forward losses which may be admissible under the existing Income-tax Act, 1961, is allowed.

Penalties -- Violation of the provisions of the law entails stringent penalties. The penalty for non-disclosure of income or an asset located outside India is equal to three times the amount of tax payable thereon, i.e., 90 per cent of the undisclosed income or the value of the undisclosed asset. This is in addition to tax payable at 30 per cent. Failure to furnish return in respect of foreign income or assets attracts a penalty of Rs1,000,000. The same amount of penalty is prescribed for cases where although the assessee has filed a return of income, but taxpayer has failed to disclose the foreign income and asset or has furnished inaccurate particulars of the same.

Prosecutions -- The Act provides enhanced punishment for various types of violations. The punishment for willful attempt to evade tax in relation to a foreign income or an asset located outside India can be rigorous imprisonment from three years to ten years. In addition, there can be a fine as well. Failure to furnish a return in respect of foreign assets and bank accounts or income is punishable with rigorous imprisonment for a term of six months to seven years. The same term of punishment is prescribed for cases where although the assessee has filed a return of income, but has not disclosed the foreign asset or has furnished inaccurate particulars of the same.

These provisions also apply to beneficial owners or beneficiaries of such illegal foreign assets. Abetment or inducement of another person to make a false return or a false account or statement or declaration under the Act is punishable with rigorous imprisonment from six months to seven years. This provision also applies to banks and financial institutions aiding in concealment of foreign income or assets of resident Indians or falsification of documents.

Safeguards -- The principles of natural justice and due process of law have been embedded in the Act by laying down the requirement of mandatory issue of notices to the person against whom proceedings are being initiated, grant of opportunity of being heard, necessity of taking the evidence produced by him into account, recording of reasons, passing of orders in writing, limitation of time for various actions of the tax authority, etc.

Further, the right of appeal has been protected by providing for appeals to the Income-tax Appellate Tribunal, and to the jurisdictional High Court and the Supreme Court on substantial questions of law. To protect persons holding foreign accounts with minor balances which may not have been reported out of oversight or ignorance, it has been provided that failure to report bank accounts with a maximum balance of up to Rs500,000 at any time during the year will not entail penalty or prosecution.

One time compliance opportunity -- The law also provides a one-time compliance opportunity for a limited period to persons who have any undisclosed foreign assets which have hitherto not been disclosed for the purposes of income-tax. Such persons may file a declaration before the specified tax authority within a specified period, followed by payment of tax at the rate of 30 per cent and an equal amount by way of penalty. Such persons will not be prosecuted under the stringent provisions of the new Act. It is clarified that this is not an amnesty scheme as no immunity from penalty is offered. It is merely an opportunity for persons to come clean and become compliant before the stringent provisions of the new Act come into force.

Through the above law, the Indian government and Parliament firmly showed a resolve to crack down on black money and it yielded good results as around Rs3,770,000,000 [Pak rupees 6,058,421,520] in untaxed or black money were voluntarily paid within just one month of promulgation of the law -- 638 people declared money parked illegally in foreign accounts enabling them to escape prosecution or jail by paying tax and penalties of around 60 per cent by December 31, 2015.

A special investigation team (SIT) in India is monitoring the black money cases and reports directly to the Supreme Court. This kind of initiative is missing in Pakistan. Even our apex court and high courts dismissed petitions praying for probe of assets stashed abroad by politicians, civil-military officials and businessmen.

While the Indian government has launched multi-pronged strategy to root out the menace of black money and untaxed assets, our worthy finance minister, instead of following suit, is reportedly considering giving blanket amnesty to holders of hidden assets by paying only 0.1 per cent of the declared amount in taxes. It is high time that government should give up this absurd policy of appeasement towards untaxed money. It must present in the Parliament a law to provide not only taxation of untaxed assets, but also penalty and prosecution as is the case under Indian Undisclosed Foreign Income and Assets (Imposition of Tax) Act, 2015.