Black money held abroad: FBR 'agrees' to TRC proposal to amend forex rules

The Federal Board of Revenue (FBR) has agreed in principle to a proposal of the Tax Reform Commission (TRC) for amendment to foreign exchange rules against black money held abroad for taxation of undeclared properties owned by Pakistanis in foreign countries. Sources told Business Recorder here on Friday that the TRC had proposed amendment to the Foreign Exchange Regulation Act against the black money held abroad.
It proposed that the person who owns property outside Pakistan for which valid declaration has not been made in the wealth statement by taxpayer. Such persons shall be subject to taxation at the rate of 15 percent tax under the Income tax Ordinance 2001 on the amount of the property owned by them outside Pakistan, the proposal added.
Responding to the proposal, the FBR's comments on the said amendment are "Agreed". The combined recommendation of FBR and TRC is to implement the proposal under medium term period. The short-term period is (immediate to 6 months) (ii) medium-term is (6 months to two years) (iii) long-term (over two years) for implementation of the TRC recommendations.
According to the proposal of the TRC, the Foreign Exchange Regulation Act [FERA] needs to be amended in order to get hold of the black money held abroad. Assets held outside Pakistan in contravention of FERA: A new section is proposed to be inserted. It provides that if any person holds any foreign exchange, foreign security or any immovable property outside Pakistan, the equivalent value of property in Pakistan can be seized. Prescribed procedure has to be followed for the seizure.
Background of the issue revealed that consider a situation where a person is holding assets in a tax haven in violation of FERA. When Enforcement Directorate wants to seize the foreign assets, the Tax Haven Government and its banks - may not cooperate. In such a situation, the Enforcement officer now will have the power to seize Pakistani assets. This power of seizure under FERA is in addition to the penal action under Income tax Ordinance 2001 and penal action under FERA. This provision is drastic. It provides that if the Authorised officer has "reason to believe" that the foreign asset is "suspected to have been held in contravention of FERA ..." the consequences of seizure will follow. Any penal consequence should follow if the contravention is proved. One cannot seize property if an officer has mere reason to believe and he just suspects a contravention. Penal consequences should follow only after the contravention is established.
Such differences of interpretation should not lead to a suspicion or conclusion that it is a contravention; and it should not lead to seizure of property. The seizure rules should apply only in case of serious contraventions like Hawala transactions. It may be noted that the phrase "Reason to Believe" has been considered judicially. It cannot be a mere suspicion by the officer. He must have a valid reason; and the information for the reason should be on his file when he passed the order.
The provisions of Anti-Money Laundering Act 2010 are far more stringent than FERA. However Anti- Money Laundering Act 2010 also provides that property can be seized provisionally. Only after the crime in respect of which the guilt is established, the seizure becomes final. Till that time the seizure is not final. Under FERA, there is no such provision additionally under the Income tax Ordinance 2001.
Specific provision proposed to be inserted in respect of the class of taxpayers who owns property outside Pakistan for which valid declaration has not been made in the Wealth statement by the taxpayer such taxpayers shall be subject to taxation at the rate of 15 percent tax under the Income tax Ordinance 2001 on the amount of the property owned by them outside Pakistan, the TRC proposal added.