Finance Ministry and Federal Board of Revenue (FBR) have fully briefed Prime Minister Imran Khan on the launch of the Assets Declaration Scheme-2019 for whitening of undeclared and undisclosed assets of citizens held in Pakistan as well as abroad. In this regard, Ministry of Finance and the FBR gave final touches to the scheme. The provisions of the scheme were analysed in detail by the officials of the Finance Ministry and FBR.
Finance Minister Asad Umer and FBR chairman Mohammad Jehanzeb Khan briefed the Prime Minister on the details of the said scheme for companies and individuals. The federal cabinet, which is scheduled to meet today (Tuesday) in the chair of Prime Minister Imran Khan, may formally accord approval to the amnesty scheme. The 22-point agenda does not include the amnesty scheme but, according to sources, the cabinet is likely to take up the scheme on it agenda.
If the scheme is taken up and approved by the cabinet, it will be implemented through a Presidential Ordinance from April 15, 2019. The declarations and payments of tax may be allowed up to June 30, 2010. The scheme is expected to be initially available for a period of 45 days. Later, the Assets Declaration Scheme-2019 may be made part of the Finance Act 2019.
In case the cabinet considers the scheme, the government may issue the Foreign Assets (Declaration and Repatriation) Ordinance, 2019 for undisclosed foreign assets and Voluntary Declaration of Domestic Assets Ordinance, 2019 for undisclosed income and domestic assets. The proceeds derived from the commission of a criminal offence are proposed to be excluded from the scheme.
The aims and objectives of the scheme cover declaration and reporting of the undisclosed assets, sales and income for fresh start of a tax compliant economy, economic stimulus by movement of funds, reducing litigation, and enhancing revenues. The proposed scheme would cover declaration of undisclosed assets, Benami assets, sales and income on or before 30th June, 2018. Tax rates range from 5% to 10% with certain exceptions. The assets will be valued at prescribed rates. Benami property declarations to be allowed, while foreign assets to be converted into money and remitted to rupee accounts in Pakistani banks/deposited into declarant's own foreign currency bank account in Pakistan.
The distinguishing features of the new scheme revealed that the scheme includes Benami assets and sales tax/FED and requires tax return filing. The scheme allows balance sheet revisions. The litigation cases are included in the scheme while cash needs to be put in bank accounts. The other distinguishing features of the scheme are limit on gold declarations and bank credits in last five years including higher valuation and higher rates.
Under the draft scheme, the rate of tax for Benami assets may be 10 percent while for foreign liquid assets repatriated into Pakistan, the tax rate may be 5 percent. In case of credit entries in own bank account, the tax rate may be one percent of the total credit entries from July 1, 2013 till June 30, 2018 or 10 percent of the peak credit entries during the said period whichever is higher.
For credit entries in Benami bank account, the tax rate may be proposed at 2 percent of the total credit entries from July 1, 2017 till April 15, 2019 or 10 percent of peak credit entries during the said period whichever is higher. For any other assets, the tax rate may be proposed at 7.5 percent of the prescribed value. The implementation strategy may cover ownership by leadership and emphasise that it's the last chance, followed by full scale prosecution, a media campaign and an enforcement drive with the assistance of banks and Nadra.
The proposed conditions of the scheme may include filing of income tax returns or revision thereof for 2018 and payment of tax, filing/revising sales tax return for last completed tax period and declaring last 5 years undisclosed sales and payment of 3% sales tax/FED, depositing the cash declared in a bank account and retaining the balance till June 30, and withdrawal of appeals /writs, while gold and precious stones declaration shall not exceed value of Rs 5 million.
The proposed details of the valuation of the assets revealed that the value for undisclosed bank account would be taking credit entries from July 1, 2013 till June 30, 2018. The value of open plots and land flats would be the cost of acquisition or FBR values on April 15, 2019, whichever is higher. The value for gold may be taken as Rs 5000 per gram.
Sources said that the last scheme was mostly availed by filers and Foreign Amnesty Scheme declarations showed 25% declarations in immovable properties in the UAE, the UK and Canada. In last scheme, people preferred to keep money outside Pakistan and local scheme was used primarily for whitening of money.
The last amnesty scheme did not lead to a higher number of tax returns or higher tax payments for return of tax year 2018 and undisclosed properties and bank accounts still remain largely undisclosed, they added. A tax expert opined FBR values of land and open plots should be brought up to real market values. Unless the gap between market values and FBR values is not narrowed, the true benefits of documentation are not possible.
Secondly, tax on credit entries is in nature of turnover tax. An explanation will be required with respect to applicability of sales tax or federal excise duty on such declarations. Undeclared sales are allowed to be declared by paying sales tax at 3%. As a result of such declaration of sales, income will also be revised, however, no window to adjust/incorporate such revised income is provided.
Companies are also allowed to avail the scheme and are allowed to revise their balance sheets to incorporate the declarations. However, there will be complications for auditors of such companies who had already audited the financial statements of such companies and had provided an unqualified opinion. There may also be litigations against such auditors by shareholders who had relied upon such audit reports in past, they added.