‘Pakistanis must declare foreign assets’

The federal government has made it mandatory on the resident Pakistanis having foreign assets and income to submit details of their assets and income and expenses along with their income tax returns.

According to a notification issued on Wednesday, the resident taxpayers, who fail to declare foreign assets and income, would be subject to penalties equal to 2% of the value of their undisclosed assets and 2% of the undisclosed income.

Through a notification, the FBR has implemented the amendments made to the Income Tax Rules.

Earlier, the FBR had sought feedback from stakeholders on the draft amendment, which has now been implemented through a gazette notification.

A new rule, 36A, has been added to the Income Tax Rules. This rule says individual resident taxpayers will submit a statement of the foreign assets and income at the end of each tax year.

The new rule also states that if assets are transferred by one person to another person during the tax year, its details should also be provided. Similarly, details of foreign income and expenses must also be provided.

In July 2022, the FBR brought another change in the definition of a resident Pakistani taxpayer to bring in those people in the tax net that stay abroad for over six months in a tax year.

The latest amendment enacted through the Finance Act 2022 has created some confusion among frequent flyers about their status whether they would be treated as taxpayers of a foreign country or as Pakistani ones.

Before the Finance Act 2022, a person was treated as a resident Pakistani taxpayer if they were "present in Pakistan for a period of, or periods amounting in aggregate to 183 days or more in a tax year”.

This meant that a person had to stay abroad for more than six months to avoid becoming a Pakistani resident taxpayer. Many wealthy people would exploit this opportunity and plan their individual taxation in a manner that they avoided becoming a taxpayer of any country.

Now the government has amended the Income Tax Ordinance through the Finance Act 2022 to plug this and created a lacuna.

According to the new definition, “an individual shall be a resident … for the tax year if [they], being a citizen of Pakistan, is not present in any other country for more than 182 days during the tax year or who is not a resident taxpayer of any other country”.

This has also created confusion among the people about whether they would have to stay in a particular country for continuous six months to avoid becoming a Pakistani resident taxpayer or they could fly in and out of the foreign country.

The answer is that a person will have to stay in a foreign country for 183 days to claim the status of a non-resident Pakistani taxpayer, and this can be achieved by coming in and going out for more than one time.