Advisory firm suggests amnesty for undeclared domestic assets as well

Offers to bring $100 billion from undocumented to formal economy

ISLAMABAD: Amid reluctance on the part of authorities to extend the upcoming tax amnesty scheme to domestic assets, a corporate tax advisory firm has sought to bring an estimated $100 billion to the formal economy by applying the scheme to local assets as well.

Tola Associates - the advisory firm - also sought immunity from prosecution under the Anti-money Laundering (AML) Act 2010 for those who would opt for both domestic as well as offshore tax amnesty schemes.



So far, the federal government has not expressed intention to offer exemption from the AML law. However, the advisory company suggested immunity only to the extent of sections that come in line with the Income Tax Ordinance 2001 and Sales Tax Act 1990.

The company has sent its proposals to the federal government that is giving final shape to the offshore tax amnesty scheme. The Supreme Court of Pakistan has constituted a committee of experts to trace and bring back money stashed in bank accounts and properties abroad by the citizens of Pakistan.

A series of meetings have been held at the Prime Minister’s Office to give a final shape to the scheme. In the last meeting, sources said, Prime Minister Shahid Khaqan Abbasi suggested offering the amnesty scheme for domestic assets as well. However, the Federal Board of Revenue opposed the suggestion. The advisory firm cautioned that Pakistan was facing significant challenges at the Financial Action Task Force (FATF) and any offshore amnesty scheme would be viewed with suspicion and could further weaken the country’s case.

Tola Associates called tax amnesty schemes “discrimination and cheating against honest taxpayers”. But at the same time it added that it was now the responsibility of the Supreme Court to ensure that fundamental rights of honest taxpayers were not abused time and again and if amnesty was to be offered, it should cover both domestic and foreign assets.

Why domestic amnesty?

The company’s estimates showed that a minimum of $100 billion of the domestic economy was undocumented.

According to it, the real estate sector comprises around 50% of parallel economy and it has been the most lucrative for parking funds due to huge differences between the fair market value of property and the deputy collector rate.

The fair market value is 10 times more than the official rate. With only Rs1 million of declared wealth, a property valuing at Rs10 million can be purchased. This way, Rs9 million of black money is parked in real estate.

The government offered an amnesty scheme to the real estate sector, but it did not contribute anything significant to state revenues. The sector, however, legalised Rs560 billion between December 2016 and March 2017, but paid virtually nothing to the public exchequer. Tola Associates proposed 15% tax on offshore immovable assets and 2% tax on those offshore movable assets that will be repatriated to Pakistan and 10% for non-repatriated assets.

It recommended that repatriation of a certain percentage of liquid assets may be made mandatory. Such repatriation will compensate the loss of foreign currency reserves due to any potential restriction imposed under Section 111(4) of the Income Tax Ordinance.

For implementing the scheme, limited powers may be extended to NADRA and banks for accepting taxes and issuing receipts and NTN certificates, it recommended.

The firm argued that there was also a need to scrap the presumptive tax regime which was a source of black money. It is one of the most irrational concepts introduced in the taxation law in any civilised society. Under this regime, the direct tax system is totally ignored. In this case, income is not taxed, but the value of import, value of supply, gross receipts, gross commission or export proceeds are taxed as income.



Tola Associates also sought to target those who helped companies and individuals take money abroad by dodging the system.

“Supreme Court may direct tax advisers and consultants to provide information on oath with respect to advising and assisting clients to form offshore assets and quantum of such offshore companies and trusts, formed either by or through their advices, with current value of such assets,” it said.

Published in The Express Tribune, April 3^rd, 2018.

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