- And sleep peacefully
The PM’s Counsel: In a pre-recorded message released on social media and elsewhere, Prime Minister Imran Khan, while addressing the nation, said that only one percent of the 220 million Pakistanis bore the burden of taxes. He painfully shared that the nation is suffering as many are not fulfilling their lawful duties and paying the due share to the state. He also disclosed that the institutions now had information and were constantly getting more, implying that they had also developed the mechanism to identify and follow up tax evaders. He concluded by saying that this was the last chance to avail the recently launched amnesty till 30 June and sleep peacefully while also contributing to your nation. The spirit of the message is right.
Changing Times: The times are surely changing for the taxation landscape in Pakistan with transnational cooperation from organizations such as OECD, newer laws such as the Benami Act and the technology shaping the data-driven focus of the tax machinery.
It is only logical to avail the Amnesty to both serve your interests as well as those of the country
What used to happen before was that either people used to connive with some corrupt officials or simply stay out of the tax net willfully to avoid full disclosure of their actual wealth, sales, expenses, and so on, while accumulating assets in their own, their family’s or trusted or controllable third party’s names. While this was very common, some people would simply behave in a similar manner due to ignorance of the laws and the resulting implications. This used to result in both tax evasion as well as mis-declarations, often with the use of benami transactions. The FBR, unfortunately, neither had the capacity nor the information to detect and/or take any penal action. Hence there was not much to worry for such people and they believed it was easier and perhaps “better” to continue with such practices. These notions stand to fail now.
Possible Nightmares: Imagine this. You bought a good expensive property for your son or daughter in a posh area, perhaps Bahria Town Karachi or DHA Lahore. You learn that this same property led to the arrest of your beloved kid and confiscation of the property. How would you feel?
Or alternatively imagine your father being arrested in front of you for not being able to justify the money trail of your hard earned empire. Or that loyal servant of yours being taken away for holding a benami for you while the property getting confiscated at least partially. Nightmares? Yes. But the good news is that you can save yourself from all these and other troubling possibilities at a fraction of the cost that you may have to incur otherwise in such instances.
Information, Capacity and Technology: Pakistan is already receiving information, courtesy the OECD collaborations about the foreign properties, bank accounts and other assets of Pakistani residents. Multiple FBR Chairmen in the past, have also claimed to have database of three to four million people without an NTN (national tax number), but enjoying a lavish lifestyle with multiple foreign trips or assets in their name. Apart from this, FBR has over time acquired data as a result of the withholding tax regime. Last but not the least, the coordination between the FBR, NADRA, FIA, and others. is bound to make life difficult for the willful tax evaders as well as the ignorant culprits once the relevant drive is started.
Political Will and Penalty Provisions: The FBR Chairman has already shared his intention of launching a drive to catch tax evaders and mis-declarants after the amnesty deadline of 30 June. State Minister for Revenue Hammad Azhar had shared about the integration of various databases which will certainly be used for such a drive. Also, due to the filer/non-filer differential taxation regime and the withholding regime a lot of the data regarding immovable properties and other assets has already been received by the FBR. It’s not like the past when the FBR struggled for data.
To make matters more “interesting” for tax evaders, the FBR issued the Benami Transactions (Prohibition) Rules 2019 on 11 March. With this, the Benami Transactions (Prohibition) Act 2017, came into force.
The practice of holding benami property— moveable or immoveable— plays a significant role in enabling tax evasion, money laundering and terror financing.
This law entails strict punishments for persons entering into benami transactions. Any person found guilty of the offence will be punishable with rigorous imprisonment of at least one year, up to seven, and a fine of up to 25 percent of the fair market value of the property. The Income Tax Ordinance 2001 already contains severe punishments for mis-declarations and/or tax fraud which can range from heavy penalties to prosecution.
The Misconceptions: A common misconception is that paying taxes and then buying a benami asset would be fine. Not paying taxes is one offence and holding a benami asset is another offence.
Another wrong notion is that if you’re not earning taxable income or if your tax has already been deducted, you do not need to hold an NTN or file your tax returns. They’re both wrong.
You have to get an NTN and file your return even if you don’t have a taxable income but own immovable property with a land area of 250 square yards or more or own any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government laws in the provinces; or areas in a Cantonment; or the Islamabad Capital Territory, or even own a motor vehicle having engine capacity above 1000 cc, or even have a commercial or industrial connection of electricity where the amount of annual bill exceeds Rs 500,000.
There are thousands of property owners in each of the major housing societies such as DHA, Bahria Town, and many other private ones in the major urban centres. How many of them have declared their affairs and even those who have, how many of them have the proper paper trail? All of them would be liable to punitive action under the above laws.
Your Last Chance: Keeping in view the above, the pressures on the national exchequer, the international and local collaborations and technological tools to use data analytics and the will of the Government to enforce the law, all indicates that it is in the best interests of those who either, because of being unaware of the law or even in willful breach, should take the opportunity to avail the “Tax Amnesty” offered by the Asset Declaration Ordinance 2019, whereby they can “whiten” their wealth, undeclared sales, expenses or benami assets for as little as 1.5 percent. Compare this to the potential tax and penalty costs which can go to as much as 25-50 per cent of the property value along with upto seven years jail. So it is only logical to avail the Amnesty to both serve your interests as well as those of the country and to sleep peacefully as the PM told us.