TAX NEWS APRIL 20, 2016

1.      Disclosures of offshore companies: Budget to propose steps: FBR chief

April 20, 2016

Federal Board of Revenue (FBR) Chairman Nisar Muhammad Khan said Tuesday that the federal budget (2016-17) would propose measures to plug in loopholes in the taxation system to control tax avoidance after the recent disclosures of offshore companies held by Pakistanis abroad. He also informed the National Assembly Standing Committee on Finance that the FBR is reviewing the whole SRO.1125 relating to the five export-oriented sectors during the budget exercise. The concessionary SRO.1125 is being revised as the FBR is not satisfied with the tax collection from this SRO.

In budget (2016-17), most of the budget proposal would be related to the direct taxes in order to raise the ratio of direct taxes in overall tax collection of the FBR. The share of direct taxes in overall collection would be further increased from existing 40 percent. Responding to queries on investigation of offshore companies by the FBR, FBR Chairman informed the committee that there is new global debate on taxes after the event of offshore companies. Across the world, there is a serious discussion on the tax laws which is very healthy. For example, in UK changes in the tax systems are being discussed by their tax authorities. "We are very carefully looking into the issue. We are in the process of proposing changes in tax laws to control tax avoidance in Pakistan," he remarked.

The issue came to the light when MNA Nafisa Shah questioned FBR whether the tax authorities have started any inquiry or investigation into the issue of offshore accounts? Whether we have proactive FBR to handle this issue?

To a question on properties purchased by Pakistanis in Dubai, Dr Muhammad Iqbal FBR Member and official spokesperson said that the FBR is writing letters to the tax authorities of Dubai for the last four years seeking information about Pakistanis who had purchased properties in Dubai. However, there is no response. The FBR has also sought the data from Dubai under the exchange of information provision of the Avoidance of Double Taxation agreement but there is no response. The FBR has also requested the said tax authorities to hold meeting on the issue of properties purchased by Pakistanis in Dubai.

FBR Chairman said that when we go to Dubai to hold talks with the International Monetary Fund (IMF), we are very keen to obtain information about Pakistanis having properties abroad from the tax authorities. However, we are unable to get the requisite information from the relevant tax department. The FBR has written a number of letters to the Dubai tax authorities but there is no response. On sideline meetings with the tax authorities in Dubai, we have requested for the said information, but so far we are unable to get the information.

Federal Board of Revenue (FBR) Member Inland Revenue Policy Rehmatullah Khan Wazir has said that the proposed legislation of Benami Transactions (Prohibition) Act, 2016 would deal with all Benami transactions held inside Pakistan or outside the country as the law would tax global income of persons.

He informed the National Assembly Standing Committee on Finance here on Tuesday that the Benami Transactions are rampantly taking place in the country. There are serious issues involved in Benami transactions of immovable properties. The problem of property held Benami has been causing concern to the tax authorities and past practice and experience shows that Benami transactions have been used for evasion of taxes. In India, similar kind of law is already applicable for the last many years, but it would be a new concept in Pakistan, Rehmatullah Khan Wazir added.

When MNA Asad Umar asked whether offshore accounts and assets made outside Pakistan are covered under the Benami Law, Rehmatullah Khan Wazir said that the law is basically dealing with the Benami properties inside Pakistan. However, when some committee members specifically asked whether the law covers properties outside Pakistan, FBR Member IR Policy responded that it will deal with all Benami transactions inside or outside Pakistan. The law taxes global income of persons, Rehmatullah Khan Wazir added.

FBR Member said that the bona fide trusts are excluded from the purview of the proposed law. People make trust of properties, which may be Benami but a genuine transaction.

He said that the broadening the tax-base exercise of the FBR has also detected Benami transactions for which this law would deal with the situation. The proposed legislation of Benami Transactions (Prohibition) Act, 2016 shall not be applicable retrospectively and it shall be applicable to those property transactions which will be executed after coming into force of the said legislation. However, if the legislators want, the law could be enforced retrospectively. The punishment covers 1-7 years period for committing Benami transaction. The law would be administered by the Inland Revenue Wing of the FBR.

Dr Muhammad Iqbal said Benami transactions have been used as a tool to evade taxes in the country. The issue arises when source of the purchase of properties has not been disclosed to the tax department. At present, no such law is dealing in the Benami transactions of properties. Moreover, it is very difficult to tax the Benami transactions in the court of law due to absence of specific law. There is no particular provision to deal with such kind of situation of buying and selling of properties. Under the proposed law, the government can straight away confiscate property if owner does not owe the property.

MNA Jehangir Khan Tareen proposed that the law should also include the foreign properties for investigation of Benami transactions. Committee Member Asad Umar said that the offshore accounts and foreign properties must be included in the Benami law for the purpose of investigation. There should be a special session of the committee on the offshore companies.

 

2.      Implementation of Form-I to create additional liability for service sector: APCAA

April 20, 2016

All Pakistan Customs Agents Association (APCAA) has said that implementation of Form-I will not only create additional liability for service sector but also put excessive financial burden on national kitty. Talking to Business Recorder, Arshad Jamal, Vice Chairman APCAA, said that trade facilitation, swift clearance and transparency were essential for any system but when any new system was introduced by FBR, there was a vested interest behind it.

He said that a presentation had recently been delivered in collaboration with Federal Board of Revenue (FBR) and State Bank of Pakistan (SBP) on Form-I and added that authorities during presentation claimed that form-I implementation was aimed at avoiding under invoicing and money laundering issues. He said that similar claims had been made when PaCCS was launched and later FBR itself opposed it with the rationale that the system was a serious threat to the national security and introduced WeBOC with tall claims. However, the swift clearance in WeBOC is still a daydream due to its complex procedures that led to corruption. Moreover, Arshad said that there was no automation in WeBOC, which was presently running manually and urged the board to make WeBOC user-friendly and transformed it into complete automated system.

He said that if complete descriptions including names of exporters/importers, address and telephone numbers were taken in Goods Declarations, there was no need to introduce Form-I. He also suggested the authority to follow the old procedure and transfer the details of GDs or exchange copies to the SBP and termed the Form-I as additional liability on service sector, besides putting excessive financial burden on national kitty.

He said that Form-I was going to be introduced for wrongdoers, who were not more than one percent of the service sector and added that authority could improve the existing system through reforms. He said that SBP was unable to get transactional value as customs department had issued valuation rulings that led under invoicing and added that if the authority wanted to get transactional values, they had to squeeze the necks of Hawala-Hundi operators.

He feared that if the clearance system was not eased with maximum facilitation to the stakeholders, taxpayers would lose their confidence that would cause malpractices and allow unauthorised agents to take control of the system and urged the authority to reduce procedural steps and update the clearance system. He said that Form-I was also going to implement with no changes, which, he opined, will not yield results.

 

 

3.      FBR briefs Dar on budget proposals

April 20, 2016

Finance Minister Ishaq Dar Tuesday chaired a meeting to review the progress with regard to revenue side of Budget 2016-17. Chairman FBR, Nisar Mohammad Khan apprised the meeting that FBR has initiated extensive consultations with the representatives of various sectors of economy, with a view to developing proposals for Finance Bill 2016-17, which help the growth objectives of the industry and the government and at the same time maintain a healthy growth in government revenues. So far, the FBR has competed consultation with 24 organisations including FPCCI, SECP, auto industry, marble industry and discussed their proposals for the upcoming budget. The outcome of the consultative process will be submitted to the Finance Minister in the form of recommendations for budget 2016-17.

The chairman stated that the FBR would continue to follow the basic principal of "differential taxation" for filers and non-filers. He also briefed the meeting on the progress with regard to rolling back of the remaining SROs. Dar appreciated the efforts of the FBR for undertaking wide-ranging consultations and directed that other stakeholders may also be consulted before finalising the recommendations for budget.

4.      'Taxation system should be revamped to produce desired results'

April 20, 2016

Former Finance Minister Dr Salman Shah has said that it was the most appropriate time to revamp taxation system that has failed to produce desired results. Economic growth can only be achieved by reducing rate and number of taxes. Dr Salman Shah was speaking at a pre-budget event jointly organised by Lahore Chamber of Commerce and Industry and the Institute of Cost and Management Accountants of Pakistan (ICMAP). He also spoke highly about LCCI initiative and expressed the optimism that its suggestions and proposals on upcoming budget would get right response.

A four-hour long discussion session on the upcoming budget was also addressed by eminent industrialist Mian Anjum Nisar, ICMAP head Kashif Mateen Ansari, Economist Dr Ikramul Haq, presidents of various Chambers of Commerce including Faisalabad, Gujranwala, Okara, Sargodha, Vehari, Gujrat, Sahiwal, Dera Ghazi Khan, Rawalpindi, Sheikhupura, Jhang and Sialkot.

MNA Qaiser Ahmad Sheikh, Chairperson Standing Committee on Finance, Revenue and Privatisation and Siraj Ahmad Khan, Chairperson Standing Committee on Commerce of National Assembly of Pakistan also addressed the event and pledged to work hand-in-hand with the business community to ensure ease of doing businesses in the country. Both the parliamentarians were confident that the private sector has the ability and the capacity to bring the country at par with developed nations of the world. They were of the view that private sector could not make inroads in past only because it stayed away from the right channel.

Mian Anjum Nisar said that it has now become almost impossible to run industry in Pakistan due to so many irritants including smuggling, under invoicing, non-professional attitude of the FBR, undue notices and other taxation issues. If the situation remained the same for quite some time, the people would not be interested in doing business or establishing industry in the country rather they would adopt other easy ways to make money including investment in real estate, he said.

Speakers from the business community were of the view that federal budget for the financial year 2016-17 should be for economy stimulus. LCCI Senior Vice President Almas Hyder said that so far as some macroeconomic indicators of Pakistan are concerned, these are showing improvement over the period of time like foreign exchange reserves, inflation rate and discount rate etc. However, the situation is not good at other social and economic indicators.

For example, Pakistan's tax revenue as percentage of GDP is just 11 percent. Under the same head, Iran stands at 14.1 percent and Malaysia at 16.9 percent. Similarly, Pakistan's national gross saving as percentage of GDP is 14.3 percent which is quite low as compared to 28.8 percent of Malaysia and 31.2 percent of Iran, he maintained.

He said the net worth of foreign direct investment in Pakistan is too low. In 2014, it stood at US 1700 million dollars but in 2015 it contracted to US 852 million dollars. Pakistan exports remained stagnant at US 25 billion dollars for almost three years. This year, it is expected that Pakistan will only be able to fetch US 23 billion dollars through exports earnings.

Since, the value of imports is likely to remain over US 45 billion dollars, so trade deficit will further be increased which would put extra pressure on already negative balance of payments. It will only lead to deficit financing and more loans, he opined.

"Tax issues are still prevailing despite the fact that government has given a framework to broaden tax net. Tax Amnesty scheme was announced but it failed to motivate new taxpayers. The biggest reason of this failure is that government did not close the other windows available for converting undeclared assets into white money. One of the ways included bringing foreign remittances as no one will question it. If this scenario continues to prevail then nothing can get better", he added. While speaking on the occasion, LCCI Vice President Nasir Saeed said the government needs to set its priorities in the right direction talking all the stakeholders on board and showing full commitment to ensure a better Pakistan for the generations to come.

 

 

5.      IMF, World Bank, UN unite to fight tax evasion

April 20, 2016

Four of the world's largest multilateral organisations joined hands Tuesday in the fight to help developing countries fight tax evasion. The International Monetary Fund, World Bank, United Nations and the Organisation for Economic Co-operation and Development (OECD), announced a joint platform for collaboration on tax issues, a beginning step to design and implement international standards.

The announcement came on the heels of the so-called "Panama Papers", a trove of documents leaked from a Panama law office that showed top international politicians among the owners of thousands of anonymous shell companies located in tax havens. "This effort comes at a time of great momentum around international tax issues," the four organisations said in a statement.

"Strengthening tax systems - policy and administration - has emerged as a key development priority." The first task for the initiative will be to deliver "toolkits" to developing countries to help them act against corporations using accounting tactics like profit shifting and transfer pricing between countries to lower their tax bills.

According to the United Nations, billions of dollars are denied to developing country government coffers each year due to what is often called euphemistically "aggressive tax planning" by multinational companies. Recent cases in Europe demonstrate how major companies shift income and assets to their offices in countries with the lowest tax rates. Developing countries "are the ones who lose out to the creativity and inventiveness of the multinationals," IMF Managing Director Christine Lagarde said in a discussion of the issue on Sunday.