Pakistan's President Mamnoon Hussain has issued four ordinances to implement economic reforms which seek to increase the tax base and help people declare their hidden assets at home and abroad.
Pakistan’s President Mamnoon Hussain has issued four ordinances to implement economic reforms which seek to increase the tax base and help people declare their hidden assets at home and abroad. The ordinances, promulgated yesterday, include Voluntary Declaration of Domestic Assets Ordinance 2018, Foreign Assets (Declaration and Repatriation) Ordinance 2018, Income Tax (amendment) Ordinance 2018, and Economic Reforms (amendment) Ordinance 2018. The Economic Reforms Package (ERP) was announced by Prime Minister Shahid Khaqan Abbasi last week who had said that the focus of the new scheme was to facilitate taxpayers and expand the tax net to at least three million people from less than 1.2 million in a population of 207 million, Dawn reported.
The ERP envisaged “one-time” amnesty scheme to whiten the undeclared assets, reduction in income tax rates, issuance of dollar-denominated bonds and barring cash transactions in non- filer accounts. The government has issues a list of public office holders who cannot avail the amnesty scheme. The list includes the president, prime ministers, governors, chief ministers, nazims, councillors, government consultants and judges of the higher and lower courts. Those facing litigation will also not be able to avail this facility.
Through the ordinances, the government has increased the threshold for income tax exemption to an annual income of Rs 1.2 million from Rs 400,000. Tax rates on higher income brackets have also been substantially reduced. As such, annual income between Rs 1.2 million and Rs 2.4 million will attract a tax rate of five per cent, while the tax rate will be 10 per cent on an annual income of Rs 2.4 million to Rs 4.8 million. Any income beyond Rs 4.8 million will attract 15 per cent tax rate. Besides, a one-time amnesty has been offered to those not paying taxes at present to become taxpayers and whiten their assets by setting aside their past. The scope of the Foreign Assets Declaration and Repatriation Ordinance has been extended to every resident company, resident association of persons and all citizens of Pakistan wherever they may be, except holders of public office and people in service of Pakistan, their spouses and dependent children. The foreign exchange repatriation through formal channels will be allowed on two per cent payment of penalty.
Under the ordinances, people will be free to declare value of their assets at their will and dollar account holders will be free to keep their accounts abroad, but just declare them and pay five per cent tax. Dollar account holders in Pakistan who have purchased dollars through undeclared money can also regularise them on two per cent payment of penalty. Foreign liquid assets, including cash/securities/bonds, held abroad can be declared at five per cent payment. New foreign exchange accounts in the country will be allowed only to tax filers, while all dollar remittances less than USD 100,000 per year per person will continue without any questions asked about the source and enjoy tax exemptions and the information will not be shared with any other agency.
The ordinance regarding the declaration of domestic assets is applicable to all Pakistanis, except those holding public office or those in service of Pakistan and their families since January 1, 2000. Through the ordinance, people have been given the opportunity to regularise their undeclared incomes and assets earned before June 30, 2017, including gold, bonds and property, on a payment of five per cent tax. At the federal level, advance income tax has been reduced to one per cent (adjustable), but the government will now have the power to buy individual properties anywhere in Pakistan within six months of registration for 100 per cent higher rate for property registered in the fiscal year 2018-19, 75 per cent rate for the fiscal year 2019-20 and 50 per cent higher rate for properties registered in the fiscal year 2020-21 and thereafter.
In future, no fresh property purchases will be possible for non-filers of tax returns of property over Rs four million. All transactions, including foreign visits, utility bills, will be visible to the government that will have to issue notice to justify them. Those availing amnesty have been protected from any investigation by any agency. After promulgation of the Protection of Economic Reforms Ordinance 2018, no cash shall be deposited in an account of a citizen residing in Pakistan unless the account holder is a filer.