I wrote an article almost two months ago when draft rules were issued for the asset declaration law. I am happy to note that the Federal Board of Revenue (FBR) has finally issued amended rules through an SRO. There had been a long debate whether there should have been ‘asset declaration laws’ or not. I will refrain from making any further comment on this matter as throughout my professional life and even today I am paying income tax at the rate of 30 percent of my income and was awarded the highest taxpayers’ card by Nawaz Sharif, the then prime minister. Besides that disparity and inequilibrium I lobbied and successfully convinced the then prime ministers Shahid Khaqan Abbasi and Imran Khan to issue asset declaration laws in 2018 and 2019, respectively. These laws were primarily issued to safeguard against confiscation of Pakistani residents undisclosed foreign assets abroad and compliance with the FATF. Nevertheless, this is a long debate and there is no need to reopen it. In my deliberations after the enactment of those laws I also explained that ‘asset declaration law’ is not only for providing immunity from income tax for the income through which such undisclosed assets have been made. These laws are made to provide immunity from other laws that relate to anti-money laundering, benami, foreign exchange, etc. Those who opposed me personally and rightly felt grieved by the inequity that is created by these laws, forget that from 1992 to 2018 Pakistan was a ‘free for all’ country insofar as asset declaration is concerned. This crime can never be forgotten. This intellectual corruption which was state-sponsored created a void in asset documentation and there was no trail for assets created inside and outside Pakistan.
Both the asset declaration laws, in my view, are perfectly drafted in line with the OECD guidelines; however, the important aspect that was not being appreciated by certain officers of the Federal Board of Revenue (FBR) and a body of tax consultants was that these declaration laws cannot be equated with the usual tax amnesty schemes. Both these laws override the Income Tax Act, 2001, the Companies Act 2017, the Foreign Exchange Regulation Act, 1947, the Anti-Money Laundering Act, 2010 and all other such laws. This in simple income tax terms means that any asset which has been declared under this law or any sum from which any undisclosed asset has been formed cannot be questioned in relation to income through which such asset has been created. For example, if it is identified that Mr P, who is a Pakistani, is the owner of assets worth USD 10 million in the USA and the source of which is supposedly dealing in prohibited goods from Pakistan. Then, under these declaration laws, if Mr P declares such assets in any declaration made under the asset declaration laws of 2018 or 2019, no proceedings under any law as mentioned above, including the income tax law, can be undertaken against Mr P in Pakistan. The taxation officer is not entitled to issue any notice to Mr P even if the office is aware of the fact that Mr P acquired this asset in the USA or the same is reported under the Corporate Reporting System (CRS) of the OECD. That asset is now kosher for all purposes. However, if an independent enquiry, not based on the existence of asset, reveals that Mr P has undertaken an illegal trade of prohibited goods then the taxation office on the completion of enquiry under that law can take action against Mr P. Even that action will be aimed at taxing the income. Nothing to do with the asset. In other words, there cannot be any ‘reverse probe’. A reverse probe means that there is an attempt to go back to income from where such asset has been made. There is no dispute on this position.
This overriding effect is such that the possibility of any action, even though valid, is not possible against such assets and income therefrom. There was no linkage between income tax law and the asset declaration law. Since the latter overrides all the actions where such assets are involved as illegal, void, wrong, unconstitutional and nothing more than a piece of paper. I strongly reiterated that this untangled status cannot be sustained. There is a need for creating a mechanism for touching the asset declaration if so permitted under the law. When I was the Chairman FBR I introduced the enabling provisions in the asset declaration laws for creating this linkage. The rules framed now have effectively given the right to FBR to even touch that declaration. Any right exercised before that notice is not valid and it is my suggestion that all such actions be immediately closed. If there is a ground for action then that can be made within the powers laid down in the rules.
In this connection, it is important to note that the asset declaration laws are not like normal laws. Even a conservative country like India introduced special provisions in its asset declaration law to enable the tax authorities to touch an asset declaration. It is clearly and unequivocally acknowledged that such right does not exist under the income tax law.
The rules framed under the said SRO have also prescribed the procedures for dealing with matters reported by CRS. This matter has been dealt with in the general clause by way of an explanation. The gist of that explanation can easily be understood by an example. Mr A declared US $ 1,000,000 in a declaration in 2018. Now the CRS information reveals that Mr A has US $ 1,100,000 in a New York bank account or Mr A has a flat worth 1,200,000 on the date of CRS reporting. In this case, a sum of US $ 1,000,000 is kosher and Mr A is only responsible to explain the accretion over time. That is all; nothing more or less. It is therefore necessary to understand the difference between an asset declaration law and usual tax amnesty scheme. In this case, the hands of tax department are tied. It should, however, be realized that a right has been given to touch and feel. There is no right to disturb. Before this SRO there was no right to even think about the asset declared in the asset declaration law. Time will decide who is the winner? It was my duty to bring asset declaration law to this stage and I thank Prime Minister Imran Khan to direct the people to do what is required under the law.
Copyright Business Recorder, 2021