Liquid & fixed assets abroad: two-pronged strategy required to identify Pakistanis

The government would have to adopt a two-pronged strategy - amending the Income Tax Ordinance 2001 and enabling FBR to proactively pursue investigation in jurisdictions outside the country through the Foreign Office to identify Pakistanis with liquid and fixed assets held abroad.
In a presentation to the Senate Standing Committee on Finance, State Bank of Pakistan (SBP) proposed that income tax exemption currently available to inward remittances be limited to Rs 10 million every year, a suggestion supported by leading tax lawyer Waheed Shahzad Butt.
Some limit for exemption of income tax on remittances under Section 111(4) of the Income Tax Ordinance, 2001 must be imposed, Butt added. He clarified that Rs 400,000 per annum is exempt from income tax and suggested a limit up to 10 times of the basic threshold of Rs 400,000 be fixed to exempt foreign remittances; or Rs 4 million per year. There must be some mechanism of taxing remittances above a certain threshold to check misuse of the scheme.
A senior FBR official told Business Recorder that every year FBR makes a serious attempt during budget preparation exercise to amend section 111(4) of the Income Tax Ordinance 2001. Presently, tax officials cannot probe source of remittance inflows and the only way to tackle this issue is to prescribe some annual threshold for investigating source of remittances. If the existing blanket exemption to remittances is replaced with some threshold it would be an effective way to check misuse, he acknowledged.
The FBR official added that cases of large annual remittances can effectively be checked through enforcement provisions of the Income Tax Ordinance 2001 and maintained that the FBR's intelligence agency is fully equipped to investigate such cases.
FBR official supported the SBP proposal but added that investigation should be limited to annual remittances above a certain amount because if there is no limit then it would become a cumbersome exercise for the FBR as it would then be required to examine each remittance coming into the country.
Another tax official suggested signing of bilateral treaties with tax-haven countries. If the government is sincere in bringing back Pakistanis' assets held abroad then it must mobilize foreign missions in tax heaven countries like UAE. However, other officials pointed out that many tax haven territories including UAE are not providing assistance in spite of a bilateral agreement with Pakistan. In such cases the role of the Foreign Office becomes very important as it may take up the matter with the UAE authorities.
A delegation of Organization of Economic Cooperation and Development (OECD) recently visited Pakistan to assess Automatic Exchange of Information (AEOI) Data Centre established by FBR to be used for exchange of financial information under Multilateral Competent Authority Agreements with other tax jurisdictions. The FBR has established six Automatic Exchange Information Zones including Commissioner Inland Revenue, AEOI Zone, Peshawar; Commissioner Inland Revenue, AEOI Zone, Islamabad; Commissioner Inland Revenue, AEOI Zone, Lahore; Commissioner Inland Revenue, AEOI Zone, Multan; Commissioner Inland Revenue, AEOI Zone, Karachi; and Commissioner Inland Revenue, AEOI Zone, Quetta, sources added.
An isolated center, dedicated for receipt of information and data processing, has been established in the FBR Headquarters. The center has been secured both physically and virtually. All the AEOI data can be accessed, processed and transferred only from the AEOI Center through dedicated human resources. All activities and transactions in the AEOI Center are monitored and recorded. The monitoring of AEOI zones will also be carried out virtually through this Center, sources in FBR added.
The time limit to reopen past cases to tax un-disclosed assets by FBR must be increased, tax lawyer Butt argued. Where there is strong suspicion of tax fraud/evasion and concealment of assets/income, particularly foreign assets, the time limit should be 30 years. A tax evader can use influence over FBR employees for some time but it is practically impossible to do so for 30 consecutive years. In case of tax evasion by public office-holders including politicians, time limit for re-opening of past cases be life-time.
Butt further stated that FBR may be allowed to request additional information from a tax payer that may include a wealth statement on a prescribed form, verified in the prescribed manner that would provide particulars of the person's total assets and liabilities as on the date or dates specified in the notice. Details required under the wealth statement must include total assets and liabilities of the person's spouse, minor children, and other dependants, any assets transferred by the person to any other person during the period or periods specified in such notice and the consideration for the transfer, the total expenditures incurred by the person, and the person's spouse, minor children, and other dependants during the period and the details of such expenditures and reconciliation of wealth/sources.