Broadening tax net: Withholding tax on $50,000 worth of remittances likely
Move is aimed at curbing the practice of legalising black money by re-routing it through forex companies
Govt expected to allocate Rs817 billion towards the military, a 10% increase over last year. PHOTO: BOUNDLESS
ISLAMABAD:
The government is likely to introduce a new tax on foreign remittances of over $50,000 besides amending the existing law to plug a loophole the millionaires are exploiting to legalise their black money by declaring it as remittances.
This is part of next year’s budget proposals that also include a new law the Federal Board of Revenue (FBR) wants to be enacted for acquiring the right to purchase property by paying an amount 25% higher than the declared value.
Both the steps are aimed at collecting the income tax that remains outside the tax base.
“The FBR is proposing to restrict the (tax-free) flow of foreign remittances but a final decision will be taken by the federal cabinet,” said FBR Chairman Tariq Bajwa, while briefing the Senate Standing Committee on Finance and Revenue about the new budget to be tabled in the National Assembly on June 5.
The federal cabinet will meet on June 5 to approve the fiscal year 2015-16 budget before it is laid before the National Assembly.
Bajwa did not disclose the exact nature of the proposal. However, sources in the FBR said the government was considering introducing at least 1% withholding tax on remittances valuing over $50,000 per annum. The move is aimed at curbing the on-going practice of legalising the black money by re-routing it through foreign exchange companies.
Sources said the FBR would also propose the federal cabinet to amend clause 111(4) of the Income Tax Ordinance, which was exploited to hide the black money.
Clause 111 deals with unexplained income and assets. Under this clause, if any person failed to give explanation about the nature and source of the amount credited into its bank account, invested or spent in business, the said amount could be included into the income chargeable to tax.
However, by inserting a special clause 111(4), the government excluded foreign exchange remittances from the purview of the taxmen. Tax officials cannot question a person receiving remittances through normal banking channels and en cashing them into rupees through a scheduled bank along with a certificate given from such bank.
Currently, people are giving cash to foreign exchange companies in Pakistan, that in return remit money from their foreign bank accounts as remittances, said an FBR official.
Under the proposal, the FBR can ask the beneficiary to establish the source of remittance, he added.
Property law
“A proposal is under consideration to curb the practice of valuing the property below the fair price aimed at avoiding taxes and hiding black money,” the FBR chairman told the committee.
He said in India there is a law where the state can acquire the property by paying a price 10% higher than the value declared in the transfer deed.
The FBR would propose to the cabinet to approve a law to acquire urban property by paying an amount 25% higher than the declared value of the property, said FBR Member Inland Revenue and Policy Shahid Hussain Asad. “Parliament should help the FBR in documenting the economy.”
Asad said a big share of black money was invested in real estate and the FBR wants to collect tax on this money from the next fiscal year onwards.
He said the FBR would use such powers discreetly and only in cases where there would be sufficient evidence that the buyer of the property has kept the value of the asset sharply lower.
“People are living in 10-kanal houses but are showing their annual income below Rs1 million,” said Asad.
The FBR chairman said from the next fiscal year the Computerised National Identity Card (CNIC) will be treated as the National Tax Number (NTC) aimed at widening the tax net and capturing the transactions that remain outside the net.
Bajwa said cost of doing business for those who do not file income tax returns would be further increased in the budget. So far, around 875,000 people had filed income tax returns, which the government would further increase in the next year, he added.
Published in The Express Tribune, May 22nd, 2015.
The government is likely to introduce a new tax on foreign remittances of over $50,000 besides amending the existing law to plug a loophole the millionaires are exploiting to legalise their black money by declaring it as remittances.
This is part of next year’s budget proposals that also include a new law the Federal Board of Revenue (FBR) wants to be enacted for acquiring the right to purchase property by paying an amount 25% higher than the declared value.
Both the steps are aimed at collecting the income tax that remains outside the tax base.
“The FBR is proposing to restrict the (tax-free) flow of foreign remittances but a final decision will be taken by the federal cabinet,” said FBR Chairman Tariq Bajwa, while briefing the Senate Standing Committee on Finance and Revenue about the new budget to be tabled in the National Assembly on June 5.
The federal cabinet will meet on June 5 to approve the fiscal year 2015-16 budget before it is laid before the National Assembly.
Bajwa did not disclose the exact nature of the proposal. However, sources in the FBR said the government was considering introducing at least 1% withholding tax on remittances valuing over $50,000 per annum. The move is aimed at curbing the on-going practice of legalising the black money by re-routing it through foreign exchange companies.
Sources said the FBR would also propose the federal cabinet to amend clause 111(4) of the Income Tax Ordinance, which was exploited to hide the black money.
Clause 111 deals with unexplained income and assets. Under this clause, if any person failed to give explanation about the nature and source of the amount credited into its bank account, invested or spent in business, the said amount could be included into the income chargeable to tax.
However, by inserting a special clause 111(4), the government excluded foreign exchange remittances from the purview of the taxmen. Tax officials cannot question a person receiving remittances through normal banking channels and en cashing them into rupees through a scheduled bank along with a certificate given from such bank.
Currently, people are giving cash to foreign exchange companies in Pakistan, that in return remit money from their foreign bank accounts as remittances, said an FBR official.
Under the proposal, the FBR can ask the beneficiary to establish the source of remittance, he added.
Property law
“A proposal is under consideration to curb the practice of valuing the property below the fair price aimed at avoiding taxes and hiding black money,” the FBR chairman told the committee.
He said in India there is a law where the state can acquire the property by paying a price 10% higher than the value declared in the transfer deed.
The FBR would propose to the cabinet to approve a law to acquire urban property by paying an amount 25% higher than the declared value of the property, said FBR Member Inland Revenue and Policy Shahid Hussain Asad. “Parliament should help the FBR in documenting the economy.”
Asad said a big share of black money was invested in real estate and the FBR wants to collect tax on this money from the next fiscal year onwards.
He said the FBR would use such powers discreetly and only in cases where there would be sufficient evidence that the buyer of the property has kept the value of the asset sharply lower.
“People are living in 10-kanal houses but are showing their annual income below Rs1 million,” said Asad.
The FBR chairman said from the next fiscal year the Computerised National Identity Card (CNIC) will be treated as the National Tax Number (NTC) aimed at widening the tax net and capturing the transactions that remain outside the net.
Bajwa said cost of doing business for those who do not file income tax returns would be further increased in the budget. So far, around 875,000 people had filed income tax returns, which the government would further increase in the next year, he added.
Published in The Express Tribune, May 22nd, 2015.