ISLAMABAD: International tax expert Dr Ikramul Haq has apprehended that the amnesty scheme for the construction industry can be "grossly abused by some unscrupulous developers and builders" by overstating their properties to whiten greater amount and then obtain higher amounts of loans from banks.
Speaking as a guest in “Paisa Bolta Hai” with Anjum Ibrahim on Aaj News, here on Sunday, Dr Haq stated that the bona fide of those developers and builders, who availed the amnesty, must be checked. Under the said scheme, there is no mechanism available to check overstating of their projects.
They do not have to file returns showing profit and loss accounts. Paying fixed tax means they can pass the burden to the buyers.
He said that the new registration of property was to be made at 130 percent of fair market value notified by the FBR or valuation by two independent valuers. This shows that the developers or builders can take advantage
of whitening larger amounts as they can even show value more than this.
He further stated that the developer and builders would pay the fixed tax on the basis of per square feet.
There should be complete transparency in the scheme to safeguard the interest of the citizens. The Presidential Ordinance has been issued after announcement of 22 days period.
"As a citizen, I again demand from the government to disclose the names of individuals, companies, and firms who have invested in construction projects under the said scheme. This is the fundamental right of every citizen under Article 19A of the Constitution," he added.
“We are not interested in knowing that what are their tax declarations. We are not asking about their income, but only their identification".
Tax lawyer Waheed Shahzad Butt stated that in order to ensure transparency and a check and balance in the amnesty scheme of the construction package, the FBR should daily update the website and disclose names of the persons who are registered with the scheme.
Waheed Shahzad Butt said in-fact instant relief package was another tax amnesty scheme with effective rate of less than 0.5 percent.
Under this package, tax liability of the builder/developer of a project will be determined on the basis of square feet area of the project developed.
Each project will be accounted for independently. Higher rate of tax has been applied at Rs250 per square feet while maximum amount of income that can be incorporated in the books of accounts is 10 times of the tax liability.
Quite amazingly dividend out of that income will also not be subject to tax in the hands of sponsors/share holders of builder/developer.
Section 111 shall not apply to capital investment made in the new project in the form of money or land but quite amazingly under this package first purchaser of the property will also not be enquired about the source of money under Section 111.
As a consequence this amnesty scheme has been offered for an effective tax rate of 0.33 percent of total funds whitened under the umbrella of the construction package.
The tax lawyer stated that the FBR had also refused to share such kind of information in the past.
In 2018, the Lahore High Court (LHC) declared former prime minister Nawaz Sharif's "Tax Incentive Scheme" introduced through SRO 1065(I)/2013 as illegal.
We asked the FBR about beneficiaries of the scheme, but the FBR had outrightly refused to share the information.
A petition is pending in the LHC that why the FBR is not disclosing the information. Such amnesty schemes are so dangerous that even in certain cases, illegal money has been legalised at the rate of 0.5 percent.
The tax lawyer said that the first buyer of the project completed under the amnesty scheme had also been given exemption from disclosing his source of investment under Section 111 of the Income Tax Ordinance 2001.
The government has given 100 percent amnesty for both the buyers and the sellers of the scheme.
Dr Ikram said that every amnesty scheme was against the Constitution.
After the introduction of 12 amnesty schemes in Pakistan, there are still individuals, who are unable to explain their capital.
The government has to keep transparency from day one in the affairs of the scheme. The developers and builders have explicitly availed exemption from Section 111 of the Income Tax Ordinance for not disclosing their source of investment.
The scheme becomes doubtful from the first day due to exemption to developers and builders from disclosing their source of investment.
The international tax expert said that the developer or builder would show property on three times higher price to the bank and take loans from the bank on the basis of equity ratio of 70:30 percent or 60:40 percent.
On the one hand, the developer would not only be able to whiten a larger amount of his investment but would also be able to show higher equity.
He said that the prime minister was always against the amnesty schemes, but "actions speak louder than words".
The government said that the scheme would not entertain money earned from Benami transactions, money laundering and criminal proceeds or terrorist financing.
On the other hand, the government itself is negating its claim by not sharing names of the investors.
If the amount invested in the scheme is untaxed money, the purchasers of properties should know about the name of such investors.
The disclosure of names will ensure whether the buyer wanted to enter into the agreement with the investor or not.
It is a public domain issue and houses would be sold in the public domain and a project is in public domain.
Waheed Shahzad Butt stated that under the scheme, the government has also facilitated the 70 allied industries where there will be no tax withholding.
Dr Ikramul Haq added that a growth of 20 percent was required in the second half (January-June) 2020-21 to meet the revenue collection target of Rs4.9 trillion. In order to achieve growth of 20 percent, the FBR has to probe past mega cases of tax evasion, but the tax base has already been eroded due to frequent amnesty schemes.
He said that the FBR had proposed to levy luxury tax on big houses in Islamabad Capital Territory, the proposal was part of the finance bill, but later it was dropped in the Finance Act.
He endorsed the viewpoint of Butt that, "There is an unholy alliance of lawmakers, law breakers, and law keepers which has eroded the tax base of the country".
Waheed Shahzad Butt stated that the developers and builders had also challenged the Special Zones to ensure to continue their work at the principal place of work.
The FBR had created Special Zones having specialised officers to exclusively deal with the developers and builders.
Copyright Business Recorder, 2021
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