Under the initial draft of the scheme, the proposal is to introduce Foreign Asset Tax through Foreign Assets Tax Act 2017. Different rates of the Foreign Asset Tax have been proposed for legalization of undisclosed foreign assets, income and expenditure, held, earned and incurred outside Pakistan. The contents of a declarations made under the scheme shall remain confidential and shall not be disclosed. The provisions of section 216 of Income Tax Ordinance 2001 shall be fully applicable to declarations made under Income Tax Ordinance 2017.
Tax slabs for foreign Pakistanis revealed that the rate of Foreign Asset Tax would be 2 percent on asset located outside Pakistan held for more than five years up to 30 June 2016; Foreign Asset Tax would be 5 percent on income/assets located outside Pakistan to be repatriated through official banking channels into Pakistan and receipt attached with the declaration and rate of Foreign Asset Tax has been proposed to be 7.5 percent for assets located outside Pakistan for which only declaration is made and foreign currency and bearer assets may be legalized on payment of 15 percent Foreign Asset Tax.
The basic concept of the scheme revealed that tax payable on the undisclosed income/assets/expenditure shall be paid through banking channels in foreign currency converted into Pakistan rupees by the declarant on or before furnishing the declaration and it shall be accompanied by evidence thereof.
According to the basic features of the scheme, where the declarant has paid tax on his undisclosed income/assets/expenditure in accordance with this Act, he shall be entitled to incorporate in his books of accounts such undisclosed income/assets. In case a person has paid tax on his undisclosed income/assets/expenditure in accordance with this Act, he shall not be liable to any further tax, charge, levy, penalty or prosecution in respect of such income/asset/expenditure under the Income Tax Ordinance, 2001 or any other law for time being in force.
Under the draft of Foreign Assets Tax Act 2017, the said law would effectively deal with the problems of undisclosed foreign assets, income and expenditure, the procedures for dealing with such assets, income and expenditure and to provide for imposition of tax on any undisclosed foreign asset, income and expenditure, held, earned and incurred outside Pakistan.
Sources said that the undisclosed asset located outside Pakistan would cover an asset (including financial interest in an entity) located outside Pakistan, held by the declarant in his name or in respect of which he is a beneficial owner and he has no explanation about the source of investment.
The undisclosed foreign asset, income and expenditure cover total amount of the value of undisclosed asset located outside Pakistan and income of declarant from a source located outside Pakistan and the expenditure incurred from a source located outside Pakistan.
The initial draft of the Foreign Assets Tax Act 2017 revealed that tax shall be charged on every declarant in respect of his total undisclosed foreign asset, income and expenditure as per the rates specified under the First Schedule of this Act.
The value of an undisclosed asset (including financial interest in the entity), means the cost of an asset acquired/created outside Pakistan converted in Pakistan rupees at the rate specified by the State Bank of Pakistan reduced by the amount of borrowing incurred by that person for the acquisition of undisclosed asset, if any, outstanding as of June 30, 2016, subject to the fact that borrowing was made from verifiable sources.
The declarant can opt to invest out of the amount declared under draft of Foreign Assets Tax Act 2017 in Pakistan Foreign Currency Investment Bond to be floated by the government of Pakistan.
Under the basic concept of the scheme, the declaration of undisclosed income/assets/expenditure shall be delivered to the concerned commissioner of Inland Revenue or such other designated officer/office that may be notified by the Board who, on receipt of such declaration, shall give an acknowledgement receipt. The undisclosed income/assets/expenditure may be declared either in consolidated form for all years for which declaration is made or separately for each year on a single declaration form.
The initial draft of the scheme revealed that all declarations filed shall be subjected to preliminary examination. Where a declaration in respect of undisclosed income/assets has been made and the tax due on such income has been fully paid, such declaration shall be accepted by commissioner of Inland Revenue concerned without any further proceedings, subject to rectification of mistake and where any deficiency or any mistake in calculation of tax or any other deficiency or mistake is noticed, a show cause notice with the prior approval of the Chief Commissioner of Inland Revenue (CCIR), shall be issued and served upon the declarant requiring him to meet the deficiency and explain the mistake or omission within 30 days of the service of the said notice. If the said deficiency or mistake is rectified within the due date, the declaration shall be accepted and the declarant should be informed accordingly.
The valuation of assets under proposed Foreign Assets Tax Act 2017 shall be made in the laid down manner. The cost of asset to the declarant, converted at the rates applicable on the date of declaration; assets and bank balances shall be valued at exchange rate notified by State Bank of Pakistan and where cost is not identifiable, the 'net market value' of such asset will be used. For the purposes of determination of 'Net Market Value' verifiable 'liabilities' shall be deducted from gross market value, sources said quoting the initial sketch of the scheme.
Copyright Business Recorder, 2017