Ministry of Finance issued a notification dated May 15, 2016 in compliance with the International Monetary Fund (IMF) structural benchmark to include income tax evasion in the list of tax crimes considered as predicate offence under Anti-Money Laundering Act, highly placed FBR officials told Business Recorder. This was revealed in the eleventh IMF review report submitted to the Fund's executive board at the conclusion of Pakistan's economic performance under Extended Fund Facility (EFF) arrangement.
When contacted, senior FBR officials confirmed that the relevant notification was issued by the Finance Ministry to include offences under the income tax law as predicate offences to money laundering. The AML (Amendment) Bill, 2015 had already empowered the investigating or prosecuting agencies to treat sales tax/excise duty offences, inadmissible adjustment of Federal Excise Duty (FED) and false statements/declarations made by taxpayers as a predicate offence under money laundering crime.
FBR officials said that the FBR Fiscal Research and Statistics Wing is publishing biannual reviews and quarterly review containing monthly data on stock of outstanding tax refund claims including sales tax, income tax and customs duty as indicated in the IMF staff review report.
The government also met the IMF structural benchmark to start detailed income tax audit of major cases of high net worth individuals and large taxpaying units taking into account risk-based audit criteria. The FBR has identified more than 50 potential cases of high net worth individuals and big units and initiated their risk-based income tax audits.
As noted in the IMF report to expand the tax base, electronic data sharing is taking place between tax and customs administrations and third party information including data of banks' transactions, buying/selling of properties, motor vehicle registration authorities and frequent travellers aboard is being used in field formations, officials maintained.
The government has also met IMF benchmark to establish communication platforms (phone hotline and website) to facilitate public reporting of corrupt practices in tax administration. In this regard, the FBR introduced the scheme of a reward to whistle blowers on its website.
The Human Resource Management (HRM) Wing of FBR has established an Integrity Management Unit to check asset declarations of tax officers; and Directorate General of Internal Audit and Directorate General of Intelligence and Investigation Inland Revenue are taking measures to check corruption within FBR. Special performance allowance/double pay package of suspended tax officials have been withdrawn as noted in the Fund report, FBR officials said.
Officials said that the proposed Benami Transaction (Prohibition) Act, 2016 has not yet been passed by the Parliament. National Assembly Standing Committee on Finance had deferred the approval of the Benami Transaction (Prohibition) Act 2016 to a special meeting on the said Act. The government is trying to seek parliamentary ratification of the legislation against benami transactions.
The FBR is modernising sales tax on goods and services in co-ordination with provincial revenue authorities/boards to improve collection and administration of sales tax and consolidate collection of provincial taxes and fees and facilitating taxpayers to discharge their tax liabilities at federal as well as provincial level. Tax-to-GDP ratio was 10.2 percent in 2015-16 and policy measures are being taken to enhance it to 14.5 percent in the next three years, the staff review adds.
Providing details of the government Fund staff agreement the eleventh review in addition notes that the authorities committed to (i) ensuring data matching between domestic taxes and customs to identify non-compliant taxpayers and minimise under-declarations; and (vi) establishing a tax policy research and analysis unit outside the FBR.
The report revealed that the government has met all the structural benchmarks for improving tax compliance and revenue collection. Memorandum of Economic and Financial Policies said that the revenue mobilisation efforts in 2016-17 include measures for introducing or expanding withholding taxes to strengthen income tax payment compliance, raising excise on cigarettes and cement, and adjusting the custom duty structure for certain goods. Revenue mobilisation efforts will include further elimination of tax concessions and exemptions amounting to 0.25 percent of GDP and new revenue measures amounting to 0.25 percent of GDP. The withholding tax on financial transactions of non-filers of income tax returns and higher withholding tax rates for non-filers in general is an instrument to encourage taxpayer registration, the report added.
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