The rules and forms for the Asset Declaration Scheme 2019 will be made public today (Friday) in order to make the amnesty scheme operational. The State Bank of Pakistan (SBP) will also issue a circular for making payments under the amnesty scheme.
However, tax experts have pointed out some major flaws in the law for the Amnesty Scheme that cannot be rectified just with issuance of rules only. When contacted FBR’s Member Inland Revenue Policy Hamid Ateeq Sarwar, who is also official spokesman, told The News on Thursday that the Ministry of Law would vet the rules for asset declaration scheme on Friday after which these would be issued soon. He said that the amnesty law was compressed from 37 pages to 6 to 7 pages and more clarifications would be done through rules. He said that the FBR did not fix any target related to this amnesty scheme as it aimed at documentation of economy. “If the revenue collection would have our priority, they did not have permitted to pay the tax amount with default surcharge in the range of 10 to 40 percent over the next fiscal year.”
Now the tax experts pointed out serious flaws in the latest amnesty law promulgated through presidential ordinance and argued that the basic and most important ingredient of an amnesty scheme was missing from it as no immunity/amnesty against tax chargeable and action to be taken under various tax statutes (no parallel Section 8(2) of Foreign Assets Scheme of 2018, for example) issued last year.
They said that the definition of undisclosed sales in Section 2(h) includes sales and supplies chargeable to Federal Excise, whereas Federal Excise is chargeable at production/manufacturing and not on supplies.
The charging Section 4 does not include outstanding demand whereas as per Section 6(4) waiver of penalty etc. given which has no nexus with charging section of the Ordinance.
As per Section 5(b), valuation of assets is to be determined as price which the assets would ordinarily fetch on sale in the open market. The disputes are likely to arise as tax authorities would now be having access to declarations as per Section 14 (this access was not available under the schemes of 2018). Previously fair market value was defined as the value as declared by the declarant but not below the cost. Now the department will be pestering the declarants raising disputes regarding the market value.
As per Section 8(d), foreign liquid assets are to be deposited in a bank account. Liquid assets include bonds and securities as well as cash. It is not understandable how bonds/certificates etc. can be deposited in a bank account.
As per Section 2(d), a declarant is a person making declaration under Section 5, whereas Section 5 relates to valuation and Section 3 relates to declarations. This is a result of the copy paste phenomenon as in the schemes of 2018 declaration was to be filed under Section 5 and while copying from the Act of 2018 it was forgotten by the authors to change the section.
In Section 7, it appears that taxpayers are now required to incorporate the undisclosed income and assets in the year in which asset was acquired, whether barred by time or not. This means that if an asset was acquired in, say, 2001 the taxpayer will incorporate in the return/WS (wealth statement of 2001) and revise all subsequent returns/WS. Previously taxpayers were to incorporate in tax year 2018 only irrespective of the year of acquisition.
Confidentiality section has also been changed. Firstly, the declarations are now not confidential from tax authorities and secondly Sub-Section (2) relating to penalty/punishment for disclosure has been omitted. In the absence of any penal provision the confidentiality provisions are not going to be followed.
Regarding declaration of undisclosed sales only Sales Tax Act and Federal Excise Act are mentioned and it appears that only liability under these acts will be waived what about Income Tax Ordinance and the tax payable under this ordinance on the undisclosed sales now being declared.
Even the schedule giving the rates of tax is not properly drafted. Foreign assets can be declared under serial number 1 and 3. Sr. No 1 talks of all assets (And not only local assets) other than domestic immovable property and how can the foreign liquid assets be excluded from this Sr No. and presumed to be only declared under Sr No 3.
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