PTI Govt’s Tax Amnesty:  Past facts and the path forward

Tax Amnesty

PTI Govt’s Tax Amnesty: 

Past facts and the path forward

By:

Omer Zaheer Meer,

CFA (USA), CPFA (UK), FCCA (UK), CA (ICAEW – UK), AMLE (UK)

IMG-20180911-WA0016.jpg

Links of Published Versions of Article:

Tax Amnesties in Pakistan:

The first ever and one of the more successful tax amnesty schemes in Pakistan was launched during Ayub Khan’s era in 1958. It resulted in a collection of approximately PKR 1.12 billion which equaled to US $ 0.24 billion approximately and around 71,289 people came within the tax net by making declarations. General Yahya Khan also launched a tax amnesty scheme in 1969 but ended up adding only 19,600 taxpayers with declared assets of just PKR 920 million. Zulfiqar Ali Bhutto’s tax amnesty in 1976 saw the number of people declaring assets decline drastically with assets worth only PKR 270 million declared. The scheme by General Zia’s government was a disaster. The PMLN government’s tax amnesty scheme in 1997 could add assets of PKR 141 million only.

In 2000 General Musharraf’s amnesty resulted in assets declaration of $3 billion approximately and has been the most successful one in terms of revenue collection. Prior to this, in the three tax amnesty schemes by PML- government, only 128 people declared their assets. Later on, PMLN’s 2016 tax amnesty saw just 10,000 declarations and a meager PKR 0.85 billion declared. However, the 2018 amnesty by PMLN was able to garner closer to a $ 1 billion but didn’t result in any significant change in the tax compliance culture. This shows that the disease of tax evasion and the curse of black money has been engulfing Pakistan since its early years.

Recently, there has been a lot of hue and cry over the Assets Declaration Ordinance, 2019 by the Pakistan Tehreek-e-Insaf Government that is commonly referred to as the “Amnesty Scheme”. The opposition has termed this as an opportunity for the near and dear ones of the Government to whiten their “black monies” which is factually incorrect as the political office holders and those related to them are barred from this scheme. Similarly, the opposition is also claiming it to be a copy of the amnesty scheme introduced by PMLN. As a result of these accusations, there is a lot of confusion as to what exactly is this scheme, is it any different from the last one by PMLN Government and whether it can help the stated objective of helping in the widening of the tax base. Let us briefly examine these questions in this write-up in an objective manner.

 Overview of the Assets Declaration Ordinance, 2019 (The Amnesty):

The above titled ordinance has been promulgated allowing undisclosed, unreported and/or under-reported assets, sales and/or expenditures upto 30th June 2018 and/or the “benami” assets acquired or held on or before the date of declaration to be legally declared for the payment of very low “taxes”.

The Scope is clarified in the section “3” of the ordinance as below:

“Subject to the provisions of this Ordinance, any person may make, on or before 30th June, 2019, a declaration only in respect of any—

  • undisclosed assets, held in Pakistan and abroad, acquired up to 30th June, 2018
  • undisclosed sales made up to 30th June, 2018
  • undisclosed expenditure incurred up to 30th June, 2018; or
  • benami assets acquired or held on or before the date of declaration;”

 

“The Prime Minister still enjoys tremendous trust in his personal integrity and also retains his charisma, but the general atmosphere of uncertainty is severely damaging”

 

Important Conditions for the Declaration

  • Any cash held in Pakistan which is to be declared will have to be deposited into the declarant’s bank account(s) and kept in the account(s) till atleast June 30, 2019.
  • Any foreign liquid assets repatriated to Pakistan under the scheme are required to be deposited into declarant’s own bank account(s) locally or invested in Pakistan Banao certificates or any foreign currency denominated bonds, issued by the Federal Government.
  • Any foreign liquid assets declared but not repatriated back to Pakistan under the scheme, in addition to being taxed at higher rate, must be deposited into the declarant’s foreign bank account(s) on or before 30th June 2019.

The Exclusions

Importantly, the ordinance or as it is commonly referred to as, the amnesty is not applicable to the following:

  1. holders of public office and their dependents as well as any of their benamidars if applicable,
  2. a public company as defined under clause 47 of section 2 of the Income Tax Ordinance 2001;
  3. matters where proceedings are pending in the court of law,
  4. matters where the proceedings have attained finality under the respective tax laws,
  5. matters where the proceeds or assets involved are derived from a criminal offence,
  6. gold and precious stones,
  7. bearer prize bonds and
  8. bearer assets

TAX RATES AND VALUES

 

Class of Assets/Income/

Expense

 

Value

 

Applicable

Tax Rates

 

Domestic Immovable Properties – Land

 

Higher of the 150% of value prescribed by the FBR under section 68 of ITO or 150% of DC value

 

1.5%

Domestic Immovable Properties – Constructed Atleast 150% DC value where FBR value has not been notified for constructed property 1.5%
 

Foreign Liquid Assets not repatriated

 

Higher of the Fair Market Value or cost, determined using  exchange rates prevalent at the  declaration date.

 

6%

 

Foreign Liquid Assets            Actual Value  Repatriated

 

                                4%

 

Unexplained Expenditure

 

Higher of the Fair Market Value or cost

 

4%

 

Undisclosed Sales                   Actual Value

 

                                 2%

 

All assets except domestic immovable properties

 

                                 4%

Timeline

While the declaration needs to be made by 30th June 2019, the tax can be deposited later by paying additional amount of default surcharge other than the tax rates discussed above, as outlined below:

Default Surcharge

 Sr. No        Time of payment of Tax

 

 

Default Surcharge Rate

 

1.       01st July 2019 to 30th September, 2019

 

   10%

2.       01st October 2019 to 31st December, 2019    20%
3.       01st January 2020 to 31st March, 20120     30%
4.       01st April 2020 to 30th June, 2020     40%

Miscellaneous Provisions:

Confidentiality

While maintain confidentiality of declarations under the ordinance is required but unlike the Previous Scheme, there are no provisions in the Ordinance for imposition of fine / for imprisonment of any person in breach of confidentiality provisions.

Protection from Prosecution

The contents of the “amnesty” declaration(s) cannot be admitted as evidence(s) against the declarants(s) for the purpose of any proceedings relating to imposition of penalty or for the purpose of prosecution under any law.

 Anti-Abuse Provision

An important anti-abuse provision, which was not included in the previous scheme by PMLN is that the declarants won’t be able to claim any allowance, credit or deduction in respect of the assets declared and incorporated in the books in consequence of such declaration. In simple terms, this would mean positive impact re tax compliance in future.

Key differences as compared to the PMLN’s Amnesty:

Below are the key differences of this current “amnesty” scheme as compared to the PMLN Government’s amnesty scheme:

  1. The requirement to deposit any cash in local or foreign bank accounts would mean that the fraudulent declaration made by exaggeration with the hopes of continuing the mal-practices in future with having the “buffer” of excess declared cash to “cover” the future revenue streams would end.
  2. The anti-abuse provision discussed above.
  3. Inclusion of broader categories of income streams, assets, expenses and sales within the scope.
  4. More impetus of fairer and market values as evident from 150% of FBR or DC values’ requirements mentioned above.
  5. Comparatively higher rates of tax.
  6. Introduction of timeline for “late” payments with default surcharges.
  7. Lack of penal clause in case of the breach of confidentiality.
  8. Some of the exclusions.

 The reservations, impact and the way forward:

There is a well supported argument that any amnesty, generally speaking sends out a wrong message to the masses and businesses in particular as effectively the wrongdoers ends up getting a better deal without any severe reprimand. This has psychological and practical ramifications for compliance in the long term.

However, at times the economic situation does require the use of such schemes. There were other better options to achieve the stated goals of this scheme. However, there are certain things which are positive about this scheme including the requirements to deposit the cash in the bank, the focus on fair market values, introduction of later payments with default surcharges and the anti abuse provision. Certainly, there is always room for improvement and this scheme could have been made even better.

The most important challenge however would be to address the uncertainty. While, Prime Minister Imran Khan still enjoys tremendous trust in terms of his personal integrity and also retains his charisma, the general atmosphere is one of uncertainty which is severely damaging. Unfortunately, this is mostly stemming from an un-accountable media spree of speculations and negative reporting in general baring a few exceptions. To make the point, let us recall that the last amnesty by the PMLN Government only really took off when the CJP announced that the court was not to review it leading to the confidence of the potential declarants. So firstly, this uncertainty needs to be curbed for this scheme to be successful.

Secondly, the relevant authorities need to run public campaigns and demonstrate that they have the information gained via OECD multilateral convention about Pakistani residents’ offshore accounts and are further strengthening the mechanism to launch a compliance drive immediately following the amnesty. Announcement of such a compliance drive with details of the penalties and timeline, widely publicized in the print and electronic media as well as on social media and along-with the curbing of the uncertainty can and will lead to the success of this scheme.

 The writer is a leading economist and tax expert who holds five top professional finance, investment and accountancy qualifications CFA (USA), CPFA (UK), FCCA (UK), CA (ICAEW, UK) & Anti-Money Laundering Specialization along-with substantial experience and represents Pakistan on Global Tax Forum while sitting on the boards of several think-tanks. His profile can be accessed at: https://omerzaheermeer.wordpress.com/about

Technocrats Crises in PTI Government: Problems & Solutions

Links of Published Versions of Article:

Technocrats Crises in PTI Government:

Problems & Solutions

 By:

Omer Zaheer Meer

CFA (USA), CPFA (UK), FCCA (UK), ACA (ICAEW – UK), AMLE (UK)

Prelude:

The economy of Pakistan is in a quagmire with many naysayers painting a doomsday scenario. They’d like you to believe that rock bottom has been hit and there’s no way out. But that’s not true. The change promised by Prime Minister Imran Khan is very much deliverable. His famous and often quoted claim of a 100% increase in taxation revenues is practical and achievable. The solutions are there, out-of-box solutions which “Status  Quo” advisors & bureaucrats would never be able to conceive and/or want to implement. Read on to know more about it.

The fortune and the misfortune:

PM Imran Khan is very lucky as he has a repute of being extremely honest, hardworking and well-meaning. Even his political opponents admit this in private and try to criticize him by attacking his currently deputed team(s). It is a strange predicament for the reasons outlined below.

PTI is also very fortunate political party as it has accumulated the finest of talented Pakistanis including lot of able and proven technocrats. These are the same people who used to stay away from even casting their votes let alone getting indulged in politics. But to his credit, PM Imran Khan changed their way of thinking and made them believe in change. To appreciate the magnitude of this blessing, just realize this that even Zulifqar Ali Bhutto or our great Quaid e Azam did not have as many talented people at their disposal. They had to make do with whatever was available. Our father of the nation himself termed the people he had in his team as mostly “khote sikke”.

There is however a problem. There is no bridge between the PM and the talented people in PTI with the same fire in their hearts as him and the same faith in his vision and leadership as he do.

During its opposition years, the PTI established a shadow cabinet by the name of “National Policy Council”. It had different teams, each headed by a top technocrat to work on the challenges for specific key ministries

Nearer the Church, farther from God:

While, PM Imran Khan is working tirelessly to make things happen and for this looking everywhere to bring in people with technical expertise, for some unknown reasons, the same is overlooked within his party. The insiders within PTI circles confide that the appointments being made are largely based on groupings sans any merits with people having no technical expertise been nominated on highly technical positions in contradiction to the PM’s own vision.

Non-technocrat political workers can and should be accommodated in thousands of non-technical positions. The technical positions however should be left for the technical members of PTI for these positions not only demand highly specialized skill sets but will also determine the outcome and legacy of PM Imran Khan’s government.

There should be a mechanism to identify and link the technocrats within PTI with the leadership in a non-partisan manner. Perhaps, some neutral technocrat within PTI would be best suited for this endeavor to avoid groupings and factions impacting the process.

The three keys to success:

There are three key requisites for success in achieving the PM’s dream of reforms. Normally the discussions about reforms and particularly the keenly discussed topic of reforming the revenue authorities and infrastructure, focuses on competency of key personnel, which is certainly important. What’s missing though, are couple of other equally vital bits.  They’re:

  • party affiliation so there is belief in the vision of the PM and
  • out of box thinking of a doer

The Enigmatic Resemblance:

There’s an uncanny resemblance between the untapped Pakistan with all the gifts of the nature, be it gold, copper, oil, coal, e.t.c. or the unexplored potential of tourism and PTI as a political party filled with all these untapped gifted professionals waiting to be utilized for the good of the country. This resemblance is enigmatic.

Like the symbols, the cures of the diseases are also similar. PTI, just like Pakistan, needs to explore its untapped resources of great minds of technocrats within.

The Reworked Bhutto Solution:

Despite all his ills and issues, Bhutto is normally billed as a genius; some even call him an evil genius for that matter. Irrespective of which side of the divide you are, one thing is for sure that the man knew politics and ground realities of South Asia.

Isn’t it astounding that almost four decades after his demise, he’s still alive in the hearts of millions despite all that unruly and disastrous stuff that has been done in his name, more so in Sindh than elsewhere? What is the magic about him then? Well there are a few. We’ll be discussing briefly the one concerning the topic at hand.

Bhutto famously appointed PPP workers at all key positions claiming that as people voted for his party to implement the agenda, only those loyal to that agenda can help achieve that. He questioned the loyalty and “merits” of the bureaucracy, e.t.c. He did go overboard to the extreme of appointing people solely on the basis of this criterion, leading to often incompetent or illiterate persons on key positions. Still, lessons derived from this can be used to put in motion the “reworked Bhutto solution”.

PTI’s Technocrats:

The solutions should simply involve using a mechanism to identify top quality technocrats within PTI and appointing them at key positions to implement PM Imran Khan’s vision. Care must be taken to ensure that technical competence, relevant experience, out of box thinking, knowledge of the local workings and a proven track record are there. It is vital that the processes be built and run by able technocrats within PTI and not those bound to oblige their groups sans merit.

FBR’s new Chairman:

Just this week, the new Chairman of FBR was announced and notified amid much hue and cry. Mr. Zaidi, a respected Chartered Accountant having no known previous affiliation with PTI and an ex Cabinet Member of the Caretaker Sindh Government setup primarily nominated by the PPP, was the choice. This speaks volume about the problem we’ve been discussing.

The idea was that someone “neutral” and “competent” from the private sector must be tried, having already tried both customs and income tax group officials as well as bureaucrats from other segments, without anyone delivering the “success” and “reforms” desired. However it resulted in two major issues.

The first problem stems from the manner in which this was executed. It’s hard to imagine how nobody was able to point out the famous “Ali Arshad Hakeem” case and take the then incumbent Chairman FBR as well as the board members into confidence before the announcement.

PM Imran Khan, being his bold and confident self, did the best possible to salvage a dire situation.

More importantly, this perfectly showcases the issue of being “nearer the church, farther from God”. The appointment practically meant that PTI felt it did not have anyone of a caliber matching Mr. Zaidi let alone be better. With all due regards to Mr. Zaidi, that is not the case and this is why PTI needs to get its house in order.

PTI National Policy Council Revenue Team:

During its opposition years, PTI established as shadow cabinet by the name of “National Policy Council”. It had different teams, each headed by a top technocrat to work on the challenges for specific key ministries. I was honored to Chair the “Revenue Team”.

Link of National Policy Council Notification

As Chairman of this team, I should disclose that PTI had a full fledge Revenue team working on reforms agenda which continuously and successfully assisted the leadership for several years including during the tough period of being in opposition. The work involved besides other areas, identifying both the major issues and their solutions concerning our taxation framework. Some of the proposals were even shared with other countries in a similar state of affairs as Pakistan at Global forums and these were hugely appreciated. This untapped treasure of PTI should be utilized and implemented. The details of such proposals shall be shared in my future write-ups so keep watching this space.

 Omer Zaheer Meer is a leading economist and tax expert who holds five top professional finance, investment and accountancy qualifications including anti-money laundering specialization along-with substantial experience and represents Pakistan on Global Tax Forum. His profile can be accessed at: https://omerzaheermeer.wordpress.com/about

 

Communicating Members’ Voices – Meeting with ACCA CEO

Communicating Members’ Voices – Meeting with ACCA CEO

Dear Readers,

Peace be on you all,

Had a very productive meeting with Ms. Helen Brand, CEO of ACCA, the largest global accountancy body in human history. In all my interactions, I’ve always found her to be very articulate and a methodical professional, yet at the same time being a very humble and friendly person.

Vital proposals regarding ACCA fraternity and brand, culminated from the feedbacks of the members and the collective wisdom of representatives, were shared and discussed at length with her and Sundeep Takwani. Sundeep is also an impressive professional.

Although it was peak period professionally, the importance of advocacy and contributing to my Alma-mater & wider society meant that I took extra time off work. And it was well worth it. The contents of the discussions were confidential, but let me share that ACCA believes in Thinking Ahead so look forward to the exciting times and initiatives ahead.

SAJJEED ASLAM, FCA arif mirza Ayla Majid Brian McEnery

 

CLICK HERE to visit my Channel

1-original

CPD Session on Financial Statement Analysis

 

About the Webinar
ACCA Pakistan is offering a training program on Financial Statements Analysis (FSA) in a two part series. The first part will cover the fundamental concepts using a real life financial statement as an example while the second part will entail a more complicated insight with the likes of the impact of Basel accords.
This topic is a key area of expertise for a modern day finance professional, whether one is working in a financial institution, corporate sector, a public office, investment house, applying for a financial product or approving one, they needs to be aware of the Financial Statement Analysis (FSA).
The knowledge of these is of extreme importance and relevance for ACCA Members including finance professionals.
Topic Index
·        Annual Report
·        Ratio Analysis
·        Horizontal Analysis
·        Vertical Analysis
·        Horizontal Vs Vertical Analysis
·        Q & A Session
Trainer’s Profile:
Mr. Omer Zaheer Meer, FCCA is Chairman of ACCA Pakistan Member Network Panel, represents Pakistan on the Global Tax Forum and is the Chairman of ACCA Pakistan’s Taxation Subcommittee. He has extensive experience as a top taxation expert and is an exceptional trainer. He is currently the Managing Partner (Corporate Services) at Millennium Law & Corporate Company, the pioneer ACCA practising firm in Pakistan.
Receiver of ACCA’s Exceptional Public Value Awards and National Advocacy Award, he is currently serving for the fourth time as Chairman Liaison Committee of Lahore Tax Bar Association. He has also served on the Finance, Economy and Taxation Committee of LCCI and is an advisor to several parliamentarians on taxation and economic affairs.
For his detailed introduction, please visit:
Audience
All ACTIVE ACCA Members.
When and Where
Saturday 07 July 2018
Timings: 10.30AM – 2.30PM (PST)
The event will be conducted through webinar.
Registration
The registration fee for this webinar is Rs.15,000 however it is free of cost for all ACTIVE ACCA Members. Those who are interested in attending the event should register by filling up the registration form available on the link below.
CPD Units
4 Units

 

FREE CONSULTATION: The Foreign & Domestic Tax Amnesty 2018 – EXTENDED till 31/07/18

Golden Opportunity for you & the Country:

With the OECD data sharing re tax avoidance and black monies looming closer along-with the threat of severe implications, the recent amnesty by Government of Pakistan appears to be a golden opportunity for those with assets/income without proper trail.

Due to the administrative and legal issues getting clarified only about a couple of weeks ago, the response to Amnesty didn’t really took off until the last two weeks. And was it some response?

It was phenomenal particularly compared with the last few amnesties. Even for the country, with its’ economy currently in a dire strait, this seems to be providing a much needed breather while the nation awaits the next Government to take charge and hopefully steer the economy in the right direction. Moreover, it may help increase the documentation of the economy which seems to be a lost cause to date despite immense expense by FBR.

While it maybe a great opportunity for, it does require a lot of care and proper planning. We can proudly offer you complete confidentiality, competence and commitment with a proven track record of 100% excellence to back it up over four (4) decades of firm history.

 

Introduction of the Managing Partner (Taxation & Corporate Services):

Mr. Omer Zaheer Meer, FCCA is Chairman of ACCA Pakistan’s Member Network Panel, represents Pakistan on the Global Tax Forum and is the Chairman of ACCA Pakistan’s Taxation Subcommittee. He has extensive experience as a top taxation expert and has been chairing  the Tax Clinic at Lahore Chamber of Commerce & Industry.
He is currently the Managing Partner (Corporate Services) at Millennium Law & Corporate Company, the pioneer ACCA practising firm in Pakistan and also sits on the boards of various corporations.
Receiver of ACCA’s Exceptional Public Value Awards and National Advocacy Award, he is currently serving for the fourth time as Chairman Liaison Committee of Lahore Tax Bar Association. He has also served on the Finance, Economy and Taxation Committee of LCCI and is an advisor to several parliamentarians on taxation and economic affairs.
For his detailed introduction, please visit:
Contact Us Now for a Free of Cost Consultation:

So, if you’re an overseas or local Pakistani National and would like to know more details, wish to avail the amnesty or simply a professional wishing to learn more, please feel free to get in touch:

Millennium Law & Corporate Company   (MLCC)   

(Pioneer ACCA & Legal Practising Firm in Pakistan)

2nd Floor, Bashir Mansion, 2 Turner Road, Lahore

0322-4219292 / 042-37242612

Unanimous & Unopposed Chairman MNP (Pak), ACCA

Dear Readers,

Peace be on you,

It is with immense pleasure that I share the fantastic news with you that I’ve been honored with a great responsibility and a historic first in being elected as:

an unopposed and unanimous Chairman of the Members’ Network Panel of the largest global accountancy body ACCA in Pakistan.

I’m also glad to share that my Vice Chairman candidate Mr. Arslan Shabbir has also been elected unopposed.

This has been a great privilege. I’m grateful to all for their faith and this testament to the appreciation of the advocacy and deliverance that’s been delivered by me consistently.

I’ll strive with my team to continue to deliver excellence and keep on supporting the executive team in delivering the Council’s agenda for the betterment of the fraternity. Your continuous support and suggestions would be even more valuable now.

Below is a picture from the inaugural meeting of the new MNP concluding the business of electing the office bearers.

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FTO & Amnesty at SCCI

Peace be on you,

Honored to have been invited by the Sheikhupura Chamber of Commerce and Industry for a session on FTO where the Tax Amnesty was also discussed. Delivered insights and shared suggestions for reforms which were highly appreciated.

Honorable officers from Federal Tax Ombudsman graced the occasion.