The Revenue Advisory Council and the Federal Board of Revenue want section 111(4) of the Income Tax Ordinance 2001 amended to check the amnesty granted to foreign remittances, as the facility has been widely misused to hide the unexplained income in the name of foreign investment.
Sources told Business Recorder here on Wednesday that the amnesty granted under the section 111(4) of the Income Tax Ordinance 2001 was discussed during the last meetings of the RAC. Both the FBR and the RAC have agreed to check the misuse of the facility granted under the said provision of the law. The scheme should be restricted to the investment made in the industry. However, the decision has to be taken by the government to abolish the amnesty available under section 111(4) of the Ordinance 2001 taking into account viewpoint of all stakeholders, they added.
The sub-group of the Tax Reform Co-ordination Group (TRCG) of the FBR had recommended that the protection provided in the Income Tax Ordinance 2001 to the investment made through foreign remittance should be restricted to industrial investments only since this was the main source of erosion of the tax policy as it encourages people to declare their black money at the rate of 2 percent.
When contacted, a tax expert termed the amnesty granted to foreign remittances under section 111(4) of the Ordinance 2001 as one of the major schemes causing huge revenue loss and loophole in the tax collection system. One of major schemes resulting in huge revenue loss is permanent amnesty granted under section 111(4) of the Income Tax Ordinance 2001. This amnesty is one of the biggest loopholes in the tax collection system. Expert opined that the people are misusing the amnesty granted under the provisions of section 111(4) of the Ordinance 2001 to hide the unexplained income in the name of foreign investment. This section gives protection to the genuine foreign income earned and subsequently sent to Pakistan through normal banking channel. On the other hand, the black money earned in Pakistan is send abroad through ''''Hundi system''''. Later, the money is transferred back to Pakistan through normal banking channel. Technically, it is a foreign investment and the department is not legally empowered to make concealment cases against the persons involved in this practice under the Income Tax Ordinance 2001. Certainly, it is an untaxed money which has gone abroad to obtain legal cover under the garb of foreign remittance.
The above mentioned provision has been widely misused by the unscrupulous elements to give legal cover to the unexplained income or black money earned through undocumented transitions particularly in the real estate sector. Under the said section, the income tax department is not empowered to demand the source of the foreign investment. The section 111(4) is a disguise to whiten the undocumented money, experts added.