Pakistan recently launched a tax amnesty scheme for foreign account holders to disclose their assets. The scheme will be effective from today – 10th April – with a deadline of June 30. The tax reforms scheme is drawing criticism from the opposition and financial experts as well.
This time, a tax consultancy firm named Tola Associates has said that the tax amnesty scheme could be in violation of the constitution.
Amnesty Scheme and The Constitution
The government offered a provision that the individuals availing the scheme will have complete confidentiality of their information. The constitution of Pakistan guarantees a fundamental right to information to every citizen in the Article 19A of the 1973 Constitution.
The tax amnesty scheme includes a confidentiality clause that might soon be challenged in the court, the firm says.
The scheme has following provisions:
- Foreign Assets (Declaration and Repatriation) Ordinance, 2018,
- Protection of Economic Reforms (Amendment) Ordinance, 2018,
- Voluntary Declaration of Domestic Assets Ordinance, 2018 and
- Income Tax (Amendment) Ordinance, 2018.
The conflict with the constitution lies in the Foreign Assets Ordinance. According to this clause, any individual availing the scheme will be immune from the laws for the time being and will have complete confidentiality of their information.
A Supreme Court lawyer, Mansoor Hassan Khan, says that the scheme doesn’t provide immunity to those availing it. He added that cases can be opened against such individuals under section 4 (b) of the Foreign Assets (Declaration and Repatriation) Ordinance, 2018. The clause says that;
All foreign assets held by the persons first mentioned in clause (a) and tax paid on the value of such assets under section 8, except where proceedings are pending in any court of law in respect of the foreign assets.
However, the firm says that Foreign Assets Ordinance and Domestic Assets Ordinance will override other laws for now and immunity will be in place. This includes immunity from Narcotic Substance Act, 1947 and Anti Terrorist Act 1997 as well which will not go down well with Financial Action Task Force which has already put Pakistan on the grey list of terror-financing watchlist.
Low Tax Rates
The firm further elaborated that the government won’t benefit much from the tax rates it has implemented in the scheme. The reason behind this is that rupee was recently devalued so those availing the scheme can adjust whatever taxes they pay on their foreign assets by devaluing them.
The government, however, says that value of the property will be determined based on the market rates. The value of the property will not be lesser than its cost of acquisition.
The rupee was recently devalued by as much as 10% while the government is only charging 3% and 5% taxes on liquid assets that won’t be repatriated.
The firm predicts that only $2 billion out of $200 billion undeclared assets will be brought back to the country.
The Scheme Offers
Overall, the scheme offers a declaration of foreign assets and foreign currency accounts at following tax rates;
- Immovable assets outside the country can be declared at 3% tax rate.
- Liquid assets brought back to the country will be charged a 2% tax rate.
- Liquid assets declared but not brought back to Pakistan will be charged at a 5% tax.
- Foreign currency accounts will be charged a 2% tax rate upon the declaration.
Pakistan People’s Party has announced that the party will challenge the amnesty scheme in Parliament.