ISLAMABAD: At the fag end of its five-year term, the Pakistan Muslim League-Nawaz government on Thursday unveiled a populist economic reforms package (ERP) envisaging another ‘one-time’ amnesty scheme to whiten undeclared assets at home and abroad, reduction in income tax rates for existing taxpayers and issuance of dollar-denominated bond.
The package was announced by Prime Minister Shahid Khaqan Abbasi without prior approval of the federal cabinet, almost 20 days ahead of the federal budget and 55 days before the PML-N tenure comes to an end on May 31. The package will come into force through a presidential ordinance soon.
Prime Minister’s Adviser on Economic Affairs Dr Miftah Ismail said the package could soon be approved by the cabinet.
• One-time amnesty to whiten undeclared assets • PPP, PTI oppose scheme • Economic Advisory Council distances itself from move
Prime Minister Abbasi was accompanied by Mr Ismail and Minister of State for Information Marriyum Aurangzeb while his adviser on revenue Haroon Akhtar was conspicuous by his absence.
The package was announced soon after the conclusion of first meeting of the newly constituted Economic Advisory Council (EAC) held at the PM Office, but the council led by former finance minister Shaukat Tarin distanced itself from the amnesty scheme. An EAC member told Dawn that the meeting was informed about the scheme, but the council said it had nothing to do with it.
The previous government of the Pakistan Peoples Party had also announced a series of popular measures in its last budget that included reduction in general sales tax rates, salary increases and income tax rate cuts.
PPP Senator Raza Rabbani criticised the amnesty scheme “for whitening black money to the benefit of big business” and said his party would oppose it in parliament.
The Pakistan Tehreek-i-Insaf also rejected the package and warned the potential beneficiaries against availing what it called illegal incentives.
The prime minister declined to comment if he had discussed the package with the Chief Justice of Pakistan when he met the latter a few days ago, as well as other stakeholders like the army chief and political parties, but said no stakeholder could oppose reduction in tax rates and expansion of the tax net.
He said all the previous amnesty schemes targeted revenue collection and hence lost its objectives while the focus of the new scheme was to facilitate taxpayers and expand tax net to at least three million people from less than 1.2 million.
“Unfortunately, the perception in this country is that paying income tax is an option. This is not true, in fact evading tax is a criminal offence,” he said, adding that only 1.2m people in a population of 207 million had filed tax returns last year. About 500,000 of those filing returns actually paid no taxes and 90 per cent of the remaining 700,000 were those who had no option because they belonged to salaried class, he added.
“Countries cannot be run like this. This is unsustainable and hence need radical approach to ensure that all citizens through use of technology and data pay taxes as an obligation to take the country forward,” he said, adding that the people having higher incomes should to pay higher taxes so that unfair burden could not fall on the shoulders of poor people through indirect taxes.
The prime minister said there were 120m holders of computerised national identity cards who could become taxpayers by just filing a simple tax return as the government had decided to merge national tax number (NTN) with CNIC.
Income tax incentives
Mr Abbasi said the existing income tax rates of up to 30pc were not sustainable and needed to be substantially reduced. Therefore, he added, the threshold for income tax exemption was being increased to annual income of Rs1.2 million from existing Rs400,000.
Tax rates on higher income brackets are also being substantially reduced. As such, annual income between Rs1.2m and Rs2.4m will attract a tax rate of 5pc while the tax rate will be 10pc on annual income of Rs2.4m to Rs4.8m. The income beyond Rs4.8m would attract 15pc tax rate.
Assets amnesty scheme
The prime minister said the government also decided to offer a one-time amnesty to those not paying taxes at present to become taxpayers and whiten their assets by setting aside their past. He repeatedly said the revenue collection was not the immediate target and declined to say what revenues could flow to the state after these measures.
He said the scope of the proposed Foreign Assets Declaration and Repatriation Ordinance would extend to every resident company, resident association of persons and all citizens of Pakistan wherever they might be, except holders of public office and people in service of Pakistan, their spouses and dependent children.
Mr Abbasi said local assets could be whitened on payment of 5pc penalty on declared assets and the owners become taxpayers through their CNIC.
The foreign exchange repatriation through formal channels will be allowed on 2pc payment of penalty. This will have two options, including repatriation of foreign assets and funds through five years at a rate of 3pc per annum (six-month payment), but this will not be encashable in the first year or encashment in Pak rupee at the prevailing inter-bank dollar rate.
The prime minister said the people would be free to declare value of their assets at their will, adding that dollar account holders would be free to keep their accounts abroad but just declare them and pay 5pc tax. Dollar account holders in Pakistan who have purchased dollars through undeclared money can also regularise them on 2pc payment of penalty. It allows declaration of foreign fixed assets on 3pc payment at market price but in no case is less than the cost of acquisition.
Foreign liquid assets, including cash/securities/bonds, etc, held abroad may be declared at 5pc payment.
The prime minister said the major source of tax evasion was parking of black money in the real estate. He said new accounts of foreign exchange in the country would be allowed only to tax filers while all dollar remittances less than $100,000 per year per person would continue without any questions asked about the source and enjoy tax exemptions and the information would not be shared with any other agency.
He said another ordinance for voluntary declaration of domestic assets would be allowed to all, except the holders of public office or in service of Pakistan and their families, and they would be given the opportunity to regularise their undeclared incomes and assets earned before June 30, 2017, including gold, bonds and property, on a payment of 5pc tax.
The prime minister said the FBR rate on property value would be abolished and provinces would be requested to abolish the DC rate. At the federal level, advance income tax is being reduced to 1pc (adjustable), but the federal government will have the power to buy individual properties anywhere in Pakistan within six months of registration for 100pc higher rate for property registered in fiscal year 2018-19, 75pc rate for fiscal year 2019-20 and 50pc higher rate for properties registered in fiscal year 2020-21 and thereafter.
In future, Mr Abbasi said, no fresh property purchases would be possible for non-filers of tax returns of property over Rs4m. On top of that, he said, all transactions, including foreign visits, utility bills, etc, would be visible through CNIC to the government that would have to issue notice to justify. He said those availing amnesty would be protected through ordinance from any investigation by any agency. The assets earned through money laundering, drugs smuggling and terror financing would not be eligible for the scheme, he added.
The prime minister said the scheme would be available for two-and-a-half months i.e. until June 30. In reply to a question about validity and legality of the package at the last leg of the current government, he said the Constitution gave the government power to take any decision until last day in office.
Published in Dawn, April 6th, 2018