TAX REFORMS & AMNESTY IN PAKISTAN

There was considerable expectation in Pakistan that the incumbent Govt. would activate long awaited tax reforms process & to roll out one-time amnesty for undisclosed foreign assets to unearth black money. An attempt to simplified tax mechanism to replace a complex web of central and province level taxes, through National Database & Registration (NADRA)   bringing the larger chunk in tax net and expand Pakistan's economic growth.

Here are key things to note about the Tax Reforms: 

• CNIC numbers to be made NTN numbers for future course to keep better vigilance and compliance of all citizens.
• Substantial cut for salaried class introduced wherein annual income of Rs1.2 MN would be exempted from income tax maximum of 15% to be levied on income above Rs4.8 MN per annum.
• Undisclosed wealth held locally or abroad to be declared after payment of nominal penalty. Pakistani’s living abroad can benefit from this scheme after paying only 2% penalty, while those in Pakistan will be required to pay 5%. Those who avail scheme to be granted one-time amnesty from accountability laws.
• On all property transactions made a uniform 1% presumptive tax (adjustable). Govt. to have the right to purchase any property by paying 100pc over and above its declared value within six months of its registration.
• Govt. to monitor citizens' financial records and issue notices if they find evidence of tax evasion. Penalties to be decided in parliament.

Offshore Assets Declaration:

a)     The foreign exchange repatriation on 2% payment of tax and offers two options for repatriation. The foreign asset holders can invest in five-year bonds at the rate of 3% per annum. But they cannot encash the bond before one year and all encashment will be in Pakistan rupee at the prevailing interbank dollar rate.

b)     Foreign liquid assets like cash, securities and bonds held abroad and in local dollar accounts may be declared with a 5% penalty.

c)     Dollar account holders in Pakistan who have purchased dollars with undeclared funds can also regularise them on 2% payment.

Property Tax Reforms:

On any property transaction citizen will have to pay a 1% 'presumptive tax', tax will be adjusted in their annual taxes. FBR/DC rate on property being abolished from 1st July 2018 and provinces being also taken onboard. Property worth over Rs4 MN is not allowed for non-filers from July 1, 2018 to be purchased.

Govt. now holds the right to buy any property that a citizen holds by paying 100% over its declared price, this will hold for six months from the registration of the property starting fiscal 2019.  The rate will fall to 75% in fiscal 2020, and 50% in fiscal 2021 to dis-incentivise under reporting.

Prospects of the Reforms & Amnesty:

Tax reforms and amnesty scheme to bring back the offshore wealth and regularize foreign assets of Pakistanis living abroad, paving way for the country to repatriate not only considerable foreign remittances but also give all Pakistani citizens a opportunity weather local or living abroad to legitimate their wealth and bring into the fold of documented economy. It will not only enhance foreign capital inflows into the capital market but also give impetus to economic activity in country at large.