Income Tax Ordinance: amendments must be part of Finance Act

The implementation of reduced rates of income tax announced in the amnesty scheme and promulgated through an Ordinance are contingent to their being incorporated in Finance Act from July 1, 2018. Sources told Business Recorder that the amendments proposed in the Income Tax Ordinance 2001 on Sunday must be a part of the Finance Act 2018 as they will be effective from July 1, 2018.
The effectivity of an Ordinance is 120 days which implies that the income tax amendment laws would lapse on 10 August; however, unless the Finance Bill contains the income tax amendment and is approved by parliament the effectivity of the ordinance from 1 July to 10 August may be challenged. Sources however added that there is no need to make amendments relating to the amnesty scheme as part of the Finance Bill which is effective for a period of 80 days - till 30 June, 2018.
A decrease in tax rates for different income earners will result in revenue losses of approximately Rs 90 billion and a decline of approximately 200,000 income tax filers, sources told Business Recorder. Legal experts while talking to Business Recorder expressed concerns that the government may face legal challenges in the enforcement of the amnesty package.
The Foreign Assets Ordinance and Domestic Assets Ordinance have been given overriding effect to other laws currently in force implying immunity from criminal laws, the Narcotic Substance Act, 1947 and the Anti Terrorist Act 1997 - which may lead to the Financial Action Task Force (FATF) placing Pakistan on the black list.
Article 19-A of the constitution of Pakistan provides right to information to every citizen. Therefore, the constitutionality of confidentiality clause in the Ordinances may be challenged. Moreover, there will be an anomaly as under section 153 (1)(b) of Income Tax Ordinance, tax rates for withholding on an individual service provider is 10% which is the minimum tax, whereas normal tax rates may be much lower due to revised slab rates.
The similar situation would be faced in case of income from property which attracts tax rates of up to 20% as a separate block of income. Amendments in the tax rates of these sectors would also be required to remove disparity. Informed sources told Business Recorder that out of a total $200 billion undeclared foreign assets, only $2 billion may be repatriated.