Roadblock: ‘Confidentiality aspect of tax amnesty goes against Constitution’

Tax advisory firm says it is against the fundamental right to information

ISLAMABAD: The government’s intention to keep the information of individuals who avail the offshore tax amnesty scheme confidential is against the constitutionally guaranteed fundamental right to information, which may land the authorities in trouble, according to a tax advisory firm.

The Article 19A of the Constitution, 1973 provides right to information to every citizen, therefore, the constitutionality of a confidentiality clause in the Ordinance may be challenged, noted Tola Associates -the corporate and tax advisory firm in its commentary.

President Mamnoon Hussain on Sunday promulgated the 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 to give effect to the domestic and offshore tax amnesty scheme the prime minister announced last week.



According to the Foreign Assets Declaration Ordinance, the particulars of any person making a declaration, or any information received in any declaration, shall be confidential notwithstanding any law for the time being in force.

The amnesty would take effect from today (Tuesday) and would end on June 30. The government has offered people to bring back their offshore assets by paying only 2% tax and declare them at 5% rate if the assets are held abroad. Domestic assets can be declared at 5% but in case of foreign currency accounts the rate will be 2%.

It is not an iron-clad amnesty scheme, as the authorities can still open cases of those who avail the amnesty under section 4 (b) of the Foreign Assets (Declaration and Repatriation) Ordinance, 2018, said Mansoor Hassan Khan, a Supreme Court advocate.

Section 4(b) of the Ordinance states 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”. The provisions of this Ordinance shall not apply to any proceeds or assets that are involved in or derived from the commission of a criminal offence.

But the tax advisory firm noted that Foreign Assets Ordinance and Domestic Assets Ordinance have been given overriding effect to other laws for the time being in force. This means that immunity from criminal laws along with Narcotic Substance Act, 1947; and Anti Terrorist Act 1997 has also been extended which will raise questions from Financial Action Task Force.

Tola Associates noted that in his press conference Prime Minister Shahid Khaqan Abbasi termed the scheme as a “one time” amnesty. However, there is no provision with respect to penalties or coercive action in case of non declaration by any person, which may be unearthed subsequently.

It is of the view that considering the recent devaluation of Pak rupee, the rates of declarations for non repatriation at 3% and 5% on moveable and immovable assets respectively, are very low. The payment of taxes at these rates by foreign assets holders will easily be offset against revaluation of their offshore assets in the rupee, it added.

Since December, Pakistan has devalued its currency by 10% against the US dollar to offset pressures from the external account.

While highlighting another flaw, which would still allow outward flow of dollars, Tola Associates noted that a cap on outward remittances has not been introduced. “Flight of precious foreign exchange will continue in form of so called foreign investment, which is against the spirit of the scheme,” it added.



The firm has suggested that there should be a threshold of $500,000 per individual for investment purposes.

The government has asked the people to avail the opportunity and enter the tax net. It has described the scheme as a “radical economic reforms package”, which is aimed at broadening the existing low tax base and attracting offshore liquid assets.

Through an amendment in the section 5(4) of Protection of Economic Reforms Act, 1992, a person, who is a non filer, is also prohibited from depositing any cash into any foreign currency account.

The firm has predicted that out of estimated $200 billion undeclared foreign assets, only $2 billion would be repatriated.

Published in The Express Tribune, April 10^th, 2018.

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