This Blog is written by Mr. Abdul Hafeez, Senior Manager, Taxation Advisory Services. Please read this blog and provide your valued comments

Highlights of Proposed Tax Amnesty Scheme 2019

The tax amnesty scheme 2019 has been approved in principle by Prime Minster of Pakistan after it was presented and briefed by federal finance minister. After the prime minister gave the formal approval, a summary will be sent to the federal cabinet for final approval at its meeting.

It is expected that the amnesty scheme will be implemented through a presidential ordinance. The first tax amnesty scheme introduced by current Government will provide people with the means to legitimize all kinds of offshore and onshore undeclared assets. Initially, the assets declaration scheme will be implemented for 45 days. The Government is trying to bridge the tax collection shortfall and if successfully implemented, it is expected that the Government may generate revenue around Rs. 150 billion to Rs. 200 billion from this scheme. However, the scheme would be successful only when people realize that the day this opportunity ends, they would not find any place to hide their assets.

The four major objectives of the scheme may be categorized as follows:

  1. Declaration and reporting of undisclosed assets,
  2. Declaration of sales and incomes
  3. Economic inducement by movement of funds
  4. Reduced litigation and enhancement of revenues without much effort

The scheme will cover declaration of undisclosed assets, benami assets, sales and incomes on or before June 30, 2018 with tax rates ranging from 5-10pc with certain exceptions but assets would be valued at prescribed rates. “Foreign assets will be converted into money and remitted to rupee accounts in Pakistani banks or deposited into declarants’ own foreign currency bank accounts in Pakistan”. In the previous schemes, the foreign assets were not required to be transferred to Pakistan.

Some of the distinguishing features of the scheme include:

  • Permission for revision in balance sheets
  • Declaration of Benami assets
  • Declaration of Sales/Production in Sales tax and federal excise duty and
  • Settlement of litigation cases

Mandatory filing/revision of income tax return is proposed and cash declared through the scheme will be required to be put in the bank accounts. The limit of gold declarations is expected to be set to a maximum of Rs5 million. Bank credit entries for last five years are expected to be covered and declared assets would be based on higher valuation at prescribed rates. Following is the expected valuation criteria:

Description Valuation
Bank accounts Credit entries of last five years
Open plots, land and flats Cost of property or FBR rate whichever is higher
Super structure Rs. 1,500 per square feet
Motor Vehicles Cost incurred till original registration
Gold Rs. 5,000 per gram
Foreign assets Values to be prescribed

The tax rates are also expected to be higher than the previous schemes. Following are expected category wise tax rates:

Description Tax Rate
Benami Assets 10%
Foreign liquid assets repatriated 5%
Credit entries in own bank accounts 1% of total credit entries for five years or 10% of peak credit entries whichever is higher
Credit entries in benami bank accounts 2% of total credit entries for five years or 10% of peak credit entries whichever is higher
Undisclosed sales 3% of sales
Other Assets 7.5%

The scheme would be available to all companies and individuals but not to three major categories. Those not allowed to benefit include holders of public office since January 1, 2000, their spouses, children, brothers and sisters or lineal ascendant of descendants. The two other categories include proceeds derived from commission of a criminal offence or cases pending before a court of law with the exception of older pending litigation.

Abdul Hafeez