Immunity to personal remittances: TRC proposal not supported by government: FBR

The Federal Board of Revenue (FBR) has opposed a proposal of the Tax Reform Commission (TRC) to restrict immunity available to taxpayers of non-offering any explanation about nature and source of foreign exchange remitted from outside Pakistan through normal banking channels.
Sources told Business Recorder here on Saturday that the TRC had proposed that immunity in respect of unexplained investment be restricted to personal remittances from overseas non-resident Pakistani to a relative and remittance by others with a threshold of $25,000 in a tax year, investor investing in industrial undertaking. However, other than personal remittances any remittance over $25,000 in a tax year should be subjected to adjustable withholding tax of at least one percent (1 percent). No immunity should be provided to resident Pakistanis and to firms, companies and other bodies registered or incorporated in Pakistan in this respect, the TRC added.
On the said proposal of the TRC, FBR''s comments are "Not supported by federal government". The combined recommendation of the FBR and the TRC is to defer the proposal being long-term. The proposal of TRC said that the current taxation laws section 111(4) of the Income Tax Ordinance 2001 provides immunity to taxpayer in respect of non-offering of explanation about the nature and source of any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed into rupees by a scheduled bank and certificate from such bank is produced to that effect.
The Protection of Economic Reforms Act, 1992 has been amended in 1999 as follows: "Immunity shall not be available to citizens of Pakistan residing in Pakistan and to firms, companies and other bodies registered or incorporated in Pakistan in respect of any new foreign currency account opened or deposits created on or after the 16th day of December, 1999 or to any incremental deposits thereafter in an existing foreign currency account. The TRC recommendation: It also provides opportunity to person refraining from being enrolled/included in the tax net and making true/fair declaration of income.
By virtue of clause (a) of sub-section (4) of Section 111 of the Income Tax Ordinance, 2001 a taxpayer does not have to offer explanation about the nature and source of any amount of foreign exchange remitted from outside Pakistan through normal banking channels.
The above-mentioned sub-section though promotes inflow of foreign exchange remittances towards the country; however, the same provision is being largely misused to incorporate the untaxed income. Moreover, the provision is also refraining persons from being enrolled/included in the tax net and making true and fair declaration of income.
It will be appreciated that why would someone like to pay tax at the rate of 30 percent to 35 percent, when this permanent route of amnesty is available at a nominal cost of around 2 percent by managing foreign remittances. It is recommended that in order to curb the misuse of provision of section 111(4)(a) it is proposed that immunity in respect of unexplained investment be restricted to:
i. Personal remittances from overseas non-resident Pakistani to a relative and remittance by others with a threshold of $25,000 in a tax year.
ii. Investor investing in industrial undertaking and funds placed in a separate account.
iii. However, other than personal remittances any remittance over $25,000 in a tax year should be subjected to adjustable withholding tax of at least one percent (1 percent).
iv. The Income Tax Ordinance also needs to be amended accordingly to ensure that no immunity should be provided to resident Pakistanis and to firms, companies and other bodies registered or incorporated in Pakistan in this respect. This will ensure the documentation of economy in an effective and efficient manner, the TRC added.