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Tax amnesty schemes as introduced by Tax Laws (Amendment) Bill, 2012

Prelude: The Senate Standing Committee on Finance on January 05, 2013 cleared “Tax Laws (Amendment) Bill, 2012” aimed at bringing 3.1 million potential individuals into the tax net with a recommendation that all those who are part of the government — parliamentarians, bureaucracy, military and their dependents – would not be entitled to avail the scheme. The Bill in order to become the law (ACT) and to come in force, is still awaiting parliamentarians approval.

Tax Laws (Amendment) Bill, 2012 offers tax amnesty by way of:

1. Investment Tax Scheme

2. Tax Registration Scheme

Amendments in Tax Laws

By the Tax Laws (Amendment) Bill, 2012, following Acts have been proposed to be amended with immediate effect:

i) Custom Act, 1969

ii) Sales Tax Act, 1990

iii) Federal Excise Duty Act, 2005

iv) Income Tax Act, 2001

Non-eligibility

Senate has recommended that the immunity under registration and investment schemes would not be available to any person who was holder of public office as defined in clause ‘m’ of section 5 of the National Accountability Ordinance 1999 (Ordinance XVIII of 1999) in the preceding five years and to his dependents.

Date of Application

[Section 1 (sub-section 2) of Tax Laws (Amendment) Act, 2012]

The bill is still pending with the parliament and the same will become law (Act) and come in force at once in the same condition or after further amendments if necessary as and when it is approved by the parliament and assented to by the president.

Public opinion on the Tax Amnesty Schemes

The Tax Laws (Amendment Bill, 2012) offering the tax amnesty schemes has been criticised by some quarters. It is termed as another financial NRO in favour of country’s ‘super rich’ who have amassed enormous wealth by foul means without paying due taxes thereon.

The Chairman FBR announced that it had identified around 3.1 million such people who have travelled through air, keep more than one bank accounts and vehicles and those would be provided a chance to get themselves registered under the new tax amnesty scheme.

He warned that the computerized national identity cards of those who don’t pay their taxes on time would be blocked while their names would also be put on the Exit Control List (ECL). FBR is determined that tax amnesty scheme will be presented in the National Assembly.

By the prolonged delay in passing the Bill, however it appears that perhaps the parliament whose term ends in March, 2013 will leave the matter undecided for the next government.

Proposed Amendments in Tax Laws

Previously any aggrieved person (except where FIR had been lodged or criminal proceedings initiated) in case of customs, sales tax and FED could apply for the appointment of committee for dispute resolution.

Amendments are proposed in: (i) Custom Act, 1969, (ii) Sales Tax Act, 1990 and (iii) Federal Excise Duty Act, 2005 as under:

i) Customs Act, 1969

Amendment of section 195-C, Act IV of 1969.- In the Customs Act, 1969 (IV of 1969) in section 195-C,-

(a) in sub-section (1), the commas and words “,except in the cases where first information reports (FIRs) have been lodged or criminal proceedings have been initiated or where interpretation of question of law having larger revenue impact in the opinion of the Federal Board of Revenue is involved,” shall be omitted; and

(b) for the sub-section (4), the following shall be substituted, namely:-

The Board shall, within forty-five days of the receipt of the recommendations of the Committee, pass an order accepting the recommendations or rejecting the same after recording the reasons thereof in the aforesaid order.

ii) Sales Tax Act, 1990

Amendment of section 47A Sales Tax Act, 1990.- In the Sales Tax Act, 1990, in section 47A,-

(a) in sub-section (1), in clause (e), the commas and words, “,except in the cases where first information report (FIRs) have been lodge under the Act or criminal proceedings initiated or where interpretation of question of law having larger revenue impact in the opinion of the Federal Board of Revenue is involved,” shall be omitted; and

(b) for sub-section (4), the following shall be substituted, namely:

The Board shall, within forty-five days of the receipt of the recommendations of the Committee, pass an order accepting the recommendations or rejecting the same after recording the reasons thereof in the aforesaid order”.

iii) Federal Excise Duty Act, 2005

Amendment of Federal Excise Act, 2005.- In the Federal Excise Act, 2005, in section 38,-

(a) in sub-section (1), in clause (e) the commas and words “,except in the cases where first information reports (FIRs) have been lodged under the Act or criminal proceedings initiated or where interpretation of question of law having larger revenue impact in the opinion of the Board is involved,” shall be omitted; and

(b) for the sub-section (4), the following shall be substituted, namely:-

The Board shall, within forty-five days of the receipt of the recommendations of the Committee, pass an order accepting the recommendations or rejecting the same after recording the reasons thereof in the aforesaid order.

By the proposed amendments in the above mentioned tax laws, the exceptions in case of ‘FIR lodged or criminal proceedings initiated’ against any person have now been omitted; and the Board shall, within forty-five days of the receipt of the recommendations of the Committee, pass an order accepting the recommendations or rejecting the same after recording the reasons thereof in the aforesaid order”.

iv) Income Tax Ordinance, 2001

In Income Tax Ordinance, 2001 in section 79 in sub-section (2) after the words “person” the words “not a citizen of Pakistan” shall be inserted. It means that Non-Resident Person will not be eligible to avail the proposed tax amnesty schemes.

By amendments in Income Tax Ordinance, 2001 two separate tax amnesty schemes have been announced as under:

1. Investment Tax Scheme Annexure – I

(u/s. 120A)

2. Tax Registration Scheme Annexure – II

(u/s. 120B)

Both these schemes are thoroughly discussed in the attached annexures (Annexure – I and Annexure II).

According to the Bill, where a person has paid registration tax:

i) He shall be entitled to incorporate income/assets/expenses with a declared value up to Rs 5 million in his books of accounts.

ii) He shall not be liable to any further tax, charge, levy, penalty or prosecution under the Income Tax Ordinance in respect of his income for any of the tax years prior to the tax year in which he has paid the registration tax.

An existing taxpayer who desires to declare undisclosed income / assets / expenditure up to the declared value of Rs 5 million shall file a declaration under the scheme made by payment of token Investment Tax of Rs 100 and an existing taxpayer who desires to declare undisclosed income/assets/expenditure with a declared value exceeding Rs 5 million shall pay Investment Tax as provided. Where any person has paid Investment Tax, he shall be entitled to incorporate income/assets/expenses declared in the declaration filed under the scheme in his books of accounts.

The contents of a declaration shall remain confidential and shall not be disclosed.

Filing of Income Tax Return

Tax Laws (Amendment) Bill, 2012 provides that the taxpayers availing the schemes shall be obliged to file returns of income for the succeeding tax year and subsequent three consecutive tax years. If any taxpayer fails, without reasonable cause to file return for the succeeding tax year and the subsequent three consecutive years the immunities granted shall automatically stand withdrawn and action under Chapter VII, Parts I, II, IV, VIII, X, XI and XII of Chapter X of the Ordinance shall be taken notwithstanding any limitation prescribed under the Ordinance.

Claim for Adjustment of Tax already paid / Deducted Subject to Filing of Return

[u/s. 120B(5)]

Any claim for adjustment of tax already paid, collected or deducted under the Ordinance against the registration tax payable under sub-section (2), shall not be admissible unless regular return of income is filed by the taxpayer and in such case provisions of this section shall not apply.

Appeal

[u/s. 120B(7)]

A “registered non-filer” and/or “un-registered non filer” having multiple bank accounts, or having undertaken foreign travel or living in expensive localities or owning immoveable assets who after receiving intimation from NADRA or from the Commissioner feels that he or she is not liable to pay registration tax under the scheme made under sub-section (1) may file an appeal in the appeal form annexed with the scheme with reasons and basis and evidence of objection by the date provided in the scheme before the concerned Commissioner who shall dispose off the same within 20 days of its receipt after affording an opportunity of hearing.

In case Registration Tax is not Paid or Appeal not Filed, Finalization of assessment u/s. 122C

[u/s. 120B(8)]

Any person who does not opt to pay the registration tax required to be paid under the scheme made under sub-section (1) and does not file appeal before the concerned Commissioner in the time and the manner provided under sub-section (7) and the scheme or the appeal filed by him is rejected by the Commissioner, shall be liable to Finalization of provisional assessment under section 122C and all the provisions of the Ordinance shall apply accordingly. During the pendency of proceedings under section 122C and the resultant recovery proceedings the person shall, notwithstanding anything contained in any other law, be liable to suspension of his CNIC, placement of his name on the Exit Control List (ECL), freezing of his bank accounts and blocking of his mobile phone SIMs after being provided an opportunity of being heard.

Immunity not for Holder of Public Office

Senate has recommended that the immunity under registration and investment schemes would not be available to any person who was holder of public office as defined in clause ‘m’ of section 5 of the National Accountability Ordinance 1999 (Ordinance XVIII of 1999) in the preceding five years and to his dependents.

Under clause ‘m’ of section 5 of the National Accountability Ordinance 1999,”Holder of public office” means a person who has been President of Pakistan or the Governor of a Province. “Holder of public office” also means a person who is, or has been the Prime Minister, Chairman Senate, Speaker of the National Assembly, Deputy Speaker National Assembly, Federal Minister, Minister of State, Attorney General and other law officers appointed under the Central Law Officers Ordinance, 1970, Advisor to the Prime Minister, Special Assistant to the Prime Minister, Federal Parliamentary Secretary, Member of Parliament, Auditor General, Political Secretary, Consultant to the Prime Minister and holds or has held a post or office with the rank or status of a Federal Minister or Minister of State.

“Holder of public office” also means a person who is, or has been, Chief Minister, Speaker Provincial Assembly, Deputy Speaker Provincial Assembly, Provincial Minister, Advisor to the Chief Minister, Special Assistant to the Chief Minister, Provincial Parliamentary Secretary, Member of the Provincial Assembly, Advocate General including Additional Advocate General and Assistant Advocate General, Political Secretary, Consultant to the Chief Minister and who holds or has held a post or office with the rank or status of a Provincial Minister.

“Holder of public office” also means a person who is holding, or has held, an office or post in the service of Pakistan, or any service in connection with the affairs of the Federation, or of a province, or of a local council constituted under any federal or provincial law relating to the constitution of local councils [co-operative societies] or in the management of corporations, banks, financial institutions, firms, concerns, undertakings or any other institution or organisation established, controlled or administered by or under the federal government or a provincial government, other than a person who is a member of any of the armed forces of Pakistan, except a person who is, or has been a member of the said forces and is holding, or has held, a post or office in any public corporation, bank, financial institution, undertaking or other organisation established, controlled or administered by or under the Federal Government or a Provincial Government [or notwithstanding anything contained in the Pakistan Army Act, 1952 or any other law for the time being in force, a person who is a civilian employee of the Armed Forces of Pakistan.

“Holder of public office” means a person who has been the Chairman or Vice Chairman of a zila council, a municipal committee, a municipal corporation or a metropolitan corporation constituted under any Federal or Provincial law relating to local councils, clause m of section 5 of the National Accountability Ordinance 1999 added. The report of the Standing Committee on Finance and Revenue has also proposed other amendment to the Tax Laws (Amendment) Bill, 2012.

Disclaimer

No responsibility is taken for any error or omission. The material contained in this update is not intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this update without considering appropriate professional advice. We expressly disclaim all and any liability to any person in respect of anything and of the consequence of anything done or omitted to be done by any such person in reliance upon the contents of this update.

Annexure – I

INVESTMENT TAX SCHEME

(Section 120A of Income Tax Ordinance, 2001)

In order to give effect to the Investment Tax Scheme, the Income Tax Ordinance, 2001 has been further amended by enacting Tax Laws (Amendment) Act, 2012.

i) Non-Eligibility

[Section 79 (sub-section 2)]

By insertion of sub-section (2) in section 79, the person other than citizen of Pakistan who is a non resident person shall not be eligible to avail the benefit of this scheme.

ii) Date of Application

[Section 1 (sub-section 2) of

Tax Laws (Amendment) Act, 2012]

The bill is still pending with the parliament and the same will become law (Act) and come in force at once as soon as it is approved by the parliament and assented to by the president.

iii) Investment Tax

[Section 120A (sub-section 2)]

Sub-section (2) of section 120A has been substituted by the following, namely:

(a) Un-registered non-filers and registered non-filers who have made declaration under a scheme made under section 120B and desire to declare undisclosed income/assets/expenditure with declared value exceeding Rs 5 Million shall be required to pay in addition to Registration Tax as defined in section 120B, Investment tax on the declared value of the assets / income / expenditure exceeding Rs 5 Million at the following rates:-

Sr No Payment Month Rate of Investment Tax

1. First Month 1.00%

2. Second Month 1.25%

3. Third Month 1.50%

The existing taxpayer who files declaration and disclosed undisclosed income/assets/expenditure.

(b) A payment of token investment tax of Rupees 100 shall be paid on the declared value up to Rs 5 million.

(c) Investment tax at the rates provided in clause (a) of this sub-section will be paid on the declared value exceeding Rs 5 million.

Entitlement

[u/s. 120A(3)(a)]

(3) Sub-section (3) shall be substitute by the following, namely:

“Where any person has paid investment tax, he shall be entitled to incorporate income / assets / expenses declared in the declaration under the scheme in his books of account.”

No further liability for charge, levy,

penalty or prosecution

[u/s. 120A(3)(b)]

Having paid the investment tax, the taxpayer shall not be liable to any further tax, charge, levy, penalty or prosecution under the Ordinance in the respect of the income / assets / expenses.

Confidentiality

[u/s. 120A(3)(c)]

The contents of a declaration shall remain confidential and shall not be disclosed in any minor.

Non admissibility in evidence-information declared by the taxpayers

[u/s. 120A(3)(d)]

Nothing contained in any declaration shall be admissible in evidence against the declarant for the purposes of any tax/charge/proceedings/penalty/prosecution under any of the following Acts/Ordinance:-

(i) Income Tax Ordinance 2001 as amended from time to time;

(ii) Foreign Exchange Ordinance 2002 as amended from time to time;

(iii) Companies Ordinance 1984 as amended from time to time;

(iv) National Accountability Ordinance 1999 as amended from time to time;

(v) Federal Investigation Agency Act 1974 as amended from time to time.

Exception

The immunity under this scheme shall not extend to offences under:-

(i) Narcotic Substances Act, 1997 as amended from time to time;

(ii) The Anti Terrorist Act, 1997 as amended from time to time; and

(iii) The Anti Money Laundering Act, 2010.”

(iv) after sub-section (3) substituted as above the following new sub-sections shall be inserted, namely:-

Execution & Implementation of the Scheme

[u/s. 120A(3A)]

For the purposes of execution and implementation of a scheme under this section besides Income Tax authorities, National Database and Registration Authority (NADRA) and banks shall also be authorised to,-

(a) accept declaration;

(b) accept registration tax;

(c) issue receipts; and

(d) issue NTN,

in accordance with the said scheme.

Filing of Returns

[u/s. 120A(3B)(1)]

Tax payers availing the scheme made under sub-section (1) shall be obliged to file returns of income for the succeeding tax year and subsequent three consecutive tax years. If any taxpayer fails, without reasonable cause to file return for the succeeding tax year and the subsequent three consecutive years the immunities granted under sub-section (3) shall stand automatically withdrawn and action under Chapter VII, Parts I, II, IV, VIII, X, XI and XII of Chapter X of the Ordinance shall be taken notwithstanding any limitation prescribed under the Ordinance.

Definition

[u/s. 120A(3B)(iii)]

For the purpose of this scheme following terms will be defined as under:

“(iii) “Declaration” means declaration made on the prescribed form annexed to the Scheme made under sub-section (1);

(iv) “Declarant” means a person, as defined under section 80 of Income Tax Ordinance, 2001, who files declaration under the Scheme made under sub-section (1);

(v) “Registration Tax” means Registration Tax as defined in sub-section (9) of section 120B and as per rates given in sub-section (2) of section 120B;

(vi) “Registered non-filer” means any person who has been allotted an NTN and,-

(a) has not filed a return of income for three tax years out of any five completed tax years;

(b) has never filed a return of income; or

(c) has filed a return of income for any of the tax year prior to five completed tax years; and

(vii) “Unregistered non-filer” means a person who does not have an NTN or has never filed a return of income”.

Annexure – II

TAX REGISTRATION SCHEME

(Section 120B of Income Tax Ordinance, 2001)

1. Tax Registration

[u/s. 120B(1)]

Notwithstanding anything contained in this Ordinance or any other law for the time being in force, the Board may make a scheme of registration, on payment of registration tax under sub-section (2), in respect of registered and un-registered non-filers.

2. Tax Registration Rates

[u/s. 120B(2)]

Where any person being an individual or an Association of persons to whom an intimation from NADRA or from the Commissioner has been issued opts to regularise his income tax affairs vide the scheme made under sub-section (1), he shall be required to pay registration tax at the following amounts depending on the time of payment:-

Sr No Payment Month Amount

1. First Month Rs 40,000

2. Second Month Rs 50,000

3. Third Month Rs 70,000

3. Where a person has paid registration tax in accordance with sub-section (2) and the scheme made under sub-section (1),-

Entitlement

[u/s. 120B(3)(a)]

He shall be entitled to incorporate income/assets/expenses with a declared value upto Rs 5 Million in his books of accounts;

No further liability for charge, levey penalty or prosecution

[u/s. 120B(3)(b)]

He shall not be liable to any further tax, charge, levy, penalty or prosecution under the Ordinance in respect of his income for any of the tax years prior to the tax year in which he has paid the Registration tax.

Confidentiality

[u/s. 120B(3)(c)]

The contents of a declaration shall remain confidential and shall not be disclosed. The provisions of section 216 shall be fully applicable to the declarations made under the scheme made under sub-section (1).

Non admissibility in evidence-information declared by the taxpayers

[u/s. 120B(3)(d)]

Nothing contained in any declaration shall be admissible in evidence against the declarant for the purposes of tax/charge/proceedings/ penalty/ prosecution under any of the following Acts/Ordinance:-

(i) Income Tax Ordinance 2001 as amended from time to time;

(ii) Foreign Exchange Ordinance 2002 as amended from time to time;

(iii) Companies Ordinance 1984 as amended from time to time;

(iv) National Accountability Ordinance 1999 as amended from time to time; and

(v) Federal Investigation Agency Act 1974 as amended from time to time.

Exception

Provided that the immunity under this sub-section shall not extend to offences under:-

(i) Narcotic Substances Act, 1997 As amended from time to time;

(ii) The Anti Terrorist Act, 1997 as amended from time to time; and

(iii) The Anti Money Laundering Act, 2010 as amended from time to time.

4. Execution and Implementation of the Scheme

[u/s. 120B(4)]

For the purposes of execution and implementation of a scheme under this section besides Income Tax authorities, National Database and Registration Authority (NADRA) and banks shall also be authorised to,-

(a) accept declaration;

(b) accept registration tax;

(c) issue receipts; and

(d) issue NTN,

in accordance with the said scheme.

5. Claim for Adjustment of Tax already paid/Deducted Subject to Filing of Return

[u/s. 120B(5)]

Any claim for adjustment of tax already paid, collected or deducted under the Ordinance against the registration tax payable under sub-section (2), shall not be admissible unless regular return of income is filed by the taxpayer and in such case provisions of this section shall not apply.

6. Filing of Regular Return

[u/s. 120B(6)]

Tax payers availing the scheme made under sub-section (1) shall be obliged to file returns of income for the succeeding tax year and subsequent three consecutive tax years. If any taxpayer fails, without reasonable cause to file return for the succeeding tax year and the subsequent three consecutive years the immunities granted under sub-section (3) shall stand automatically withdrawn and action under Chapter VII, Parts I, II, IV, VIII, X, XI and XII of Chapter X of the Ordinance shall be taken notwithstanding any limitation prescribed under the Ordinance.

7. Appeal

[u/s. 120B(7)]

A “registered non-filer” and/or “un-registered non filer” having multiple bank accounts, or having undertaken foreign travel or living in expensive localities or owning immoveable assets who after receiving intimation from NADRA or from the Commissioner feels that he or she is not liable to pay registration tax under the scheme made under sub-section (1) may file an appeal in the appeal form annexed with the scheme with reasons and basis and evidence of objection by the date provided in the scheme before the concerned Commissioner who shall dispose off the same within 20 days of its receipt after affording an opportunity of hearing.

8. In case Registration Tax is not Paid or Appeal not Filed, Finalization of assessment u/s. 122C

[u/s. 120B(8)]

Any person who does not opt to pay the registration tax required to be paid under the scheme made under sub-section (1) and does not file appeal before the concerned Commissioner in the time and the manner provided under sub-section (7) and the scheme or the appeal filed by him is rejected by the Commissioner, shall be liable to Finalization of provisional assessment under section 122C and all the provisions of the Ordinance shall apply accordingly. During the pendency of proceedings under section 122C and the resultant recovery proceedings the person shall, notwithstanding anything contained in any other law, be liable to suspension of his CNIC, placement of his name on the Exit Control List (ECL), freezing of his bank accounts and blocking of his mobile phone SIMs after being provided an opportunity of being heard.

9. Definitions

[u/s. 120B(9)]

(i) “Declaration” means declaration made on the prescribed form annexed to the Scheme made under sub-section (1);

(ii) “Declarant” means an individual or and AOP, who files declaration under the Scheme made under sub-section (1);

(iii) “Exit Control List” means an exit control list maintained by the Federal Government in pursuance of an order made under sub-section (1) of section 2 of the Exit from Pakistan (Control) Ordinance 1981 (XLV of 1981);

(iv) “Investment Tax” means investment tax as defined in section 120A(4)(ii) and an Investment Tax Scheme as announced by the Federal Board of Revenue;

(v) “Registration Tax” means tax payable under the scheme under sub-section(1) and shall be deemed as tax as defined in clause (63) of section 2;

(vi) “Registered non-filer” means any person who has been allotted an NTN and,-

(a) has not filed a return of income for three tax years out of any five completed tax years;

(b) has never filed a return of income; or

(c) has filed a return of income for any of the tax year prior to five completed tax years;

(vii) Undisclosed income

“Undisclosed income” means any income/expenditure/ asset which was chargeable to tax but could not be so charged under Income Tax Ordinance, 2001, for any tax year(s) or assessment year(s) ended on or before 30th day of June, immediately preceding the tax year in which the scheme under sub-section (1) was made and includes deemed income under section 111 or any other deemed income under the Ordinance(s),

(viii) Unregistered non-filer

“Unregistered non-filer” means an individual who does not have an NTN or has never filed a return of income.”

FBR order recording the reasons to be passed within 45 days

(u/s. 120B)

The Board shall, within forty-five days of the receipt of the recommendations of the Committee, pass an order accepting the recommendations or rejecting the same after recording the reasons thereof in the aforesaid order.

NADRA

NADRA shall also be involved in the implementation of the scheme ie Investment Tax Scheme u/s. 120A and Tax Registration Scheme u/s. 120B.

Wasful Hassan Siddiqi, "Tax amnesty schemes as introduced by Tax Laws (Amendment) Bill, 2012," Business recorder. 2013-02-02.
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