ISLAMABAD: Former chairman of the Federal Board of Revenue (FBR), Shabbar Zaidi Friday said that assets declared under two special statutes, ie, Foreign Assets (Declaration & Repatriation) Act, 2018 and Asset Declaration Ordinance, 2019 are not subject to Capital Value Tax (CVT).
He called upon the FBR chairman to confirm the said legal position, adding if there is another view, the FBR should inform the legal opinion.
In a letter to the tax authorities, the noted chartered accountant, said that Finance Act, 2022 – effective from July 1, 2022 – has introduced a Capital Value Tax, adding the CVT is payable for the tax year ended June 30, 2022 (Tax year 2022) and the following years. The CVT is an asset tax, he said, adding the constitution under entry number of 50 of Federal Legislative List, empowers the federal government to charge tax on capital value of assets.
However, he said that this right does not extend to immovable properties. The CVT is therefore constitutionally not leviable by federal government on immovable property, he said, adding there is no distinction between immovable property inside or outside Pakistan for that purpose.
Foreign Assets: Foreign Assets have been defined in the CVT 2022 as: “Foreign assets” means any movable or immovable assets held outside Pakistan, whether directly or indirectly, and includes but not limited to real estate, mortgaged assets, stock and shares, bank accounts, bullion, cash, jewels, jewellery, paintings, accounts and loan receivables, assets held in dependents’ name, beneficial ownership or beneficial interests or contribution in offshore entities or trusts:
CVT on Assets Declared under Asset Declaration laws: Pakistan introduced two special laws being Foreign Assets (Declaration and Repatriation) Act, 2018 and Assets Declaration) Act, 2019. These were special statutes not the usual tax amnesty schemes.
The underlying objectives of these laws were to allow Pakistanis to declare assets held outside Pakistan without identifying the manner in which such foreign assets were acquired by him outside Pakistan despite the restrictive foreign exchange regime of Pakistan as contained in Foreign Exchange Regulation Act, 1947.
The objective was to immune such persons for identifying the sources from which such assets were acquired and any tax proceeding with respect to the assets so declared.
The objectives of the laws was to immune such persons from any proceeding under Anti-Money laundering Act, 2010 and immunize such assets from any further tax under any law for the time being in force in Pakistan.
Immunity from further tax: Section 8 of the Foreign Assets (Declaration and Repatriation) Act, 2018 provided that:
Payment of tax: (1) the due date for the payment of tax chargeable under section 7 shall be the date on which declaration is made under section 6.
(2) No tax shall be payable by the declarant under any law for the time being in force including the Income Tax Ordinance, 2001 where tax has been paid under sub-section (1) in respect of the foreign assets declared under section 5.
Overriding Effect: Supreme Court of Pakistan in the decision reported as I. G. HQ Frontier Corps and others v. Ghulam Hussain and others (2004 SCMR 1397) has held that a specific law prevails over the general law in particular circumstances.
Copyright Business Recorder, 2022