Several changes to income tax laws have been proposed by the government in a bid to go after offshore tax evaders. Tax evasion through offshore accounts will become a criminal offense, carrying hefty fines or up to seven years in jail.
The revisions are based on the recommendations made by the Financial Action Task Force (FATF) and will be added to the Finance Act 2019 after the parliament approves them. The revisions make multiple changes to the legal framework that is applicable to tax evaders, absconders, abettors, officials, and individuals involved in misconducts and real estate transactions.
The government presented the bill on Tuesday, which allows commissioners the power to freeze domestic assets of people who are thought to be a flight risk or might dispose of said assets.
Hiding Offshore Assets
Additionally, sections 192B, 195A, and 195B of the bill pertaining to hiding offshore assets and people working as an accessory to this offense.
The government is seeking punishments in acts of hiding offshore assets worth more than PKR 100,000; it will carry jail time of up to seven years or a fine of up to 200% of the amount tax evaded or both.
Offshore Tax Evasion
Furthermore, it has been recommended that people who have evaded offshore taxes equal to PKR 2.5 million, should have their names listed in both print and electronic media.
Also, the guilty individuals could be penalized with jail time of two years or fine worth 2% of the offshore assets’ amount, if they haven’t been listed under Section 116A of the foreign assets statement.
Aiding and Abetting
Even those who are found aiding and abetting an action that leads to tax evasion can be imprisoned for up to seven years or levied a fine of PKR 5 million or both; their names will also be published in the media.
The Finance Bill 2019 has also authorized commissioners to investigate different locations using the provisions of the bill if they have accurate information regarding the availability of undeclared gold, bearer securities or foreign currency and can confiscate them.
The government, in a bid to maximize asset declaration under the Assets Declaration Act 2019, has stopped cases of declaration under said act. It has also initiated a scheme under which people receiving business income, regardless of being under the minimum tax threshold, have to register with the FBR through NADRA’s e-sahulat centers.
Currently, only taxpayers are required to register with the FBR and those who receive business income are not required to file returns as tax isn’t applicable due to falling below the taxability threshold. This move would allow the government to create a database of future taxpayers.
Additionally, in a bid to speed up refund claims, the govt has recommended establishing an FBR Refunds Settlement Company for dishing out refunds under Income Tax Ordinance through bonds similar to the Refund Settlement Company under Sales Tax Act.
The proposed bonds are similar to Sales Tax Bonds.
The bill also recommends carrying out criminal investigation against officials and taxpayers involved in financial misconducts. Additionally, in a bid to cut down personal interaction between taxpayers and officials, the FBR has been authorized to develop an Automated Impersonal Tax Regime.
Immovable Property Sale/Purchase
To enable proper documentation of transactions in real estate and to determine the actual value of a transaction to buy an asset, people buying immovable property of fair market value more than that of PKR 5 million and PKR 1 million or more in the case of any other assets will have to make the payments in the form of a cross banking instrument thus allowing identification of the bank accounts involved. The deductions under the depreciation and amortization of such assets will not occur, in case of non-compliance.
Furthermore, the purchase amount will not be treated as the cost for calculating any gain on sale of such asset and people who don’t comply with this requirement will see a penalty of 5% imposed on assets under the FBR’s set value.
The board has been authorized to create a special tax framework for certain persons/sectors including small businesses, construction businesses, medical practitioners, hospitals, educational institutions, and any other sector specified.
The bill also aims to assist the creation of Directorates General of Special Initiative and Valuation.