Tax amnesty: Law on the anvil to protect owners of offshore assets

ISLAMABAD: In what might be construed as a controversial move, authorities are planning to give protection from all types of fiscal and election laws to those citizens, including those holding public offices, who would declare their foreign assets under a new amnesty scheme.

The stakeholders – including the government and businesses – are finalising the and Foreign Asset Tax Bill, 2017 to give a general tax amnesty scheme.

This could be the fourth tax amnesty scheme over the last three years by the PML-N government. But unlike past, the authorities are now planning to include ‘public officeholders’ among the beneficiaries.

Under the draft bill, the authorities also want to give protection from prosecution under laws of the Election Commission of Pakistan, National Accountability Ordinance, Foreign Exchange Regulation Act and Anti-Money Laundering Act, sources told The Express Tribune.

To the public, the scheme will be presented as an effort to bring back money stashed abroad, but it actually aims at saving skin of the billionaire politicians and business executives, who are facing problems due to tightening of global fiscal laws, said a source.

The politicians who would avail the scheme and declare their hidden assets abroad would be able to dodge disqualification as they would get immunity from the election law.

To evolve a consensus on the draft bill a meeting of the stakeholders was convened on Saturday at the Governor House in Karachi under the chair of Sindh Governor Mohammad Zubair.

However, due to some differences among the stakeholders another meeting will be held before presenting the final draft to Prime Minister Nawaz Sharif, according to sources.

During his last visit to Karachi, Sharif had called for preparing a consensus draft of the scheme. However, this draft will be subject to scrutiny of Finance Minister Ishaq Dar.

Ironically, those who had earlier facilitated the country’s billionaires to park their wealth abroad to evade taxes and hide ill-gotten money are now involved in the preparation of the scheme.

The stakeholders have engaged AF Ferguson to prepare the draft. A leading chartered accountancy firm, AF Ferguson is the same firm that advised both Premier Nawaz Sharif and the PTI in the Panamagate case.

But the draft, which is still subject to last-minute changes, shows a clear tilt towards those who cheated the system and stashed their wealth abroad in violation of the Foreign Exchange Regulation Act.

In December last year, the Federal Bureau of Revenue had also shared the broader contours of the general amnesty scheme with Finance Minister Dar.

Draft scheme

According to AF Ferguson’s assessment, Pakistanis have parked about $150 billion worth of assets abroad. Of which, $40 billion are parked in foreign real estate either through offshore entities or directly.

Another $40 billion are in bank balances; $20 billion are in the shape of shares in Pakistani companies and $50 billion are in the shape of other assets, including manufacturing concerns.

But its assessment is that at best ‘$3 billion to $4.5 billion’ will be repatriated to Pakistan, and still the firm is keen to give a clean chit to these violators at as low rate as 2% penalty.

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The highest rate it has proposed is 20% but only in case where the assets are in liquid shape and are not repatriated to Pakistan after their declaration.

The scheme shall also be applicable to people holding public offices provided that in such cases all assets created at the time when the person was a public officeholder are brought back to Pakistan.

“International and domestic pressures (are) leading difficulties for keeping undeclared assets offshore. A Pakistan declaration (amnesty scheme) will provide protection internationally,” said AF Ferguson.

But the firm seems to be providing protection to these cheaters. As these politicians and executives have violated numerous laws, they are now unable to declare their assets to foreign and local authorities.

The scheme is proposed to allow the violators ‘one time declaration’ of offshore assets and the proposed law will be applicable to all Pakistani citizens, whether resident or nonresident for tax purposes.

The AF Ferguson model seeks zero penalties on those whose foreign assets are more than five-year-old on the plea that the income tax law cannot tax assets more than five-year-old. Yet these people will be violating AML law, foreign currency regulation law, benami law and Political Parties Order 2002.

According to the firm’s working that is based on consultation with stakeholders. If assets are acquired within five years, the violators may be allowed to repatriate these assets to Pakistan at 2% nominal penalty.

If these assets are not repatriated to Pakistan and are invested in Pakistan-issued dollar denominated bonds, the government should charge only 3% of the value of the declaration.

If the assets are not repatriated to Pakistan and are in the shape of fixed assets, then the government should charge only 5% rate. Finally, if the violators keep their liquid assets abroad, then the government should charge 20% rate.

According to some, there is a need for a genuine amnesty scheme that strikes a balance between the interests of these people and the State.

Source: The Express Tribune