Hafeez Shaikh rejects Asad Umar’s tax amnesty scheme model

Adviser instructs FBR to come up with a simplified version with only two tax classifications

Shahbaz Rana April 22, 2019

ISLAMABAD: The prime minister's adviser on finance, Dr Hafeez Shaikh, rejected the design of the recently proposed tax amnesty scheme on Sunday, raising objections over the classification of assets and tax rates -- marking a clear departure from the policies of his predecessor, Asad Umar.

In his first meeting with the Federal Board of Revenue (FBR), Shaikh asked the tax officials to come up with a more simplified version of the scheme.

He turned down the proposal to introduce six types of tax rates for various categories of assets, a finance ministry official told The Express Tribune.

PM Imran struggles to muster the cabinet's support for the tax amnesty scheme

Instead, Shaikh asked FBR officials to reduce the tax classifications to only two -- which means that the Benami assets that would have attracted the highest rates under Umar's model may now be cleared at the same rate set for other domestic assets.

Unlike Umar, Shaikh also did not rule out the possibility of more tax amnesty schemes in the future, the official said.

Shaikh acknowledged the need for offering a tax amnesty scheme because of the problems arising out of the enactment of the Benami Assets Prohibition Act.

However, he asked the FBR to focus more on the budget than spending too much energy on the amnesty scheme.

According to a handout issued by the finance ministry, the adviser "reviewed the proposed Assets Declaration Scheme 2019 in detail with FBR officials and instructed them to fine-tune the scheme to make it simple to understand and easy to implement."

The discussion focused on the scope and the features of the scheme.

The objective of the scheme should be to make the economy more tax compliant and documented, Shaikh told the officials.

Tax amnesty scheme hits snags in cabinet

Shaikh was appointed the adviser to the prime minister on finance, revenue, and economic affairs on Friday – a position that he had earlier held between 2010 and 2013 during the tenure of then president Asif Ali Zardari.

Shaikh, who was living in the United Arab Emirates, first came to meet Prime Minister Imran Khan around 10 days ago when Umar was on a trip to Washington, according to sources.

It is unclear as to whether Shaikh has formally joined the Pakistan Tehreek-e-Insaf (PTI) or not.

The FBR official said Shaikh did not show urgency over the tax amnesty scheme and sought further deliberations.

The federal cabinet has already deferred the approval of the tax amnesty scheme twice and it is unlikely that its draft would be presented in the next meeting.

The cabinet had concerns over the possible political implications of going against the PTI's core values of fighting corrupt practices.

The official said the FBR gave a detailed presentation to Shaikh on the design of the Pakistan Muslim League-Nawaz's (PML-N) last tax amnesty scheme and the PTI's first one.

Shaikh was of the view that PTI's proposed scheme appeared to be an improved version of the last one.

A scheme that the government comes up within its first year in power should be different from the one that a government had offered in its last year, Shaikh was quoted as saying by the official.

Around 82,289 people had availed the PML-N government's last scheme, resulting in the whitening of assets worth Rs2.5 trillion in return for Rs124 billion in taxes.

Under Umar's model of the tax amnesty scheme, the FBR had proposed setting different tax rates for the repatriation of offshore assets, disclosure of domestic assets and legalisation of Benami assets.

The FBR had suggested a minimum of 5%, 10% and a maximum 15% rate for the repatriation of offshore assets. For the declaration of domestic assets, it had proposed 10%, 15%, and 20% rates. For clearance of Benami assets, the proposed rates were 15%, 20%, and 25%.

Earlier, the idea was to charge the highest rates from those possessing Benami assets, but now it seems they would be able to legalise their wealth without much trouble.

There is also the possibility that the government may allow declaration of offshore assets without their repatriation to Pakistan.

Shaikh directed the FBR that the scheme should not allow declaration of future income at reduced tax rates. Gold and cash were the two avenues that could be used to declare future income.

Shaikh asked the FBR officials to explore the possibility of continuing the tax amnesty scheme beyond June 30 by charging relatively higher rates. However, the FBR fears that the International Monetary Fund (IMF) may disapprove of the scheme when it goes ahead with the bailout package for Pakistan.

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