Scope of gifts among taxpayers' relatives restricted

The federal government in the Finance Bill 2018 has also decided to restrict the scope of gifts amongst the relatives of the taxpayers to stop evasion of taxes through gift arrangements taking place in Pakistan. According to the Finance Bill 2018 issued here on Friday, to stop evasion of taxes through gift arrangements, it has been decided by the government to restrict the scope of gifts amongst the relatives of the taxpayer. As per prevalent law, no gain or loss is taken to arise on the disposal of an asset by reason of a gift of the asset.
Under the provision of non-recognition of capital gain on gift to be restricted to relatives as per Finance Bill, 2018, no gain or loss is taken to arise on the disposal of an asset by reason of a gift of the asset under sections 37 and 79 of the Ordinance ie it is treated as a non-recognition event, therefore, no liability for capital gains tax arises. Such non-recognition shall now be restricted to gifts given to "relatives" of an individual as defined in section 85(5) of the Income Tax Ordinance, 2001.
The federal government in the Finance Bill 2018 has decided to withdraw the powers of minister-in-charge and Economic Coordination Committee (ECC) of the Cabinet to issue any notification, known as statutory regulatory order (SRO), and it has been proposed to revert back the powers to the federal government instead of federal minister-in-charge.
Earlier, Lahore High Court has issued notices to the government of Pakistan in a petition filed by a lawyer Waheed Shahzad Butt, who has challenged the validation clauses inducted in fiscal laws to validate all previous notifications issued in former prime minister's regime and powers obtained by FBR to issue any SRO with the approval of minister-in-charge in Customs Act, 1969, Sales Tax Act, 1990, Income Tax Ordinance, 2001 and Federal Excise Act, 2005.
A new anti-avoidance concept has also been introduced in the Budget 2018 to add a new section in the Income Tax Ordinance, 2001 on attributing and including income of a controlled foreign company in taxable income of a resident person. For this purpose special rules shall also be framed which may be classified as Controlled Foreign Companies Rules with the objective to taxing passive income parked outside Pakistan by domestic companies.
Final tax regime tax for commercial importers has been changed. Now commercial importers are required to file their complete return of income and compute their taxable income. This measure will lead to stop under-invoicing, domestic transfer pricing and evasion of tax. Income tax collected from commercial importers at the import stage shall now constitute minimum tax liability instead of final tax.
Very crucial and important amendment has been proposed in Section 111 of the Income Tax Ordinance, 2001 whereby concealed income arising from outside Pakistan may be taxed in the tax year prior to the year of discovery of such unexplained income or asset by the FBR authorities.
Inbuilt tax amnesty scheme in shape of Section 111 of the Income Tax Ordinance, 2001 has been rationalized. At present a person was not required to explain the nature as well as the source of any amount of foreign exchange which is remitted from outside Pakistan through normal banking channels and subsequently en-cashed into Pakistani rupees by any scheduled bank. In order to discourage whitening of untaxed money and legitimizing tax evaded incomes through this mode, amendment has been made in Sub-section 4 of Section 111 of the Income Tax Ordinance, 2001 whereby persons would be required to explain the source of investment if the amount of foreign remittances exceeds Rs 10 million in a year of twelve months.
Furnishing of foreign income and assets statement has been made mandatory for all resident individuals while time limitation for issuance of a notice calling for return of income in case of foreign income /assets has been rationalized and now time limit for issuance of a notice calling for return shall not apply if the Commissioner Inland Revenue is satisfied on the basis of reasons to be recorded in writing that a person who failed to furnish his return has foreign income or owns foreign assets.
Non-filers shall not be permitted to purchase new motor vehicles manufactured in Pakistan or new imported vehicles. Notorious provisions of law ie automatic selection of audit due to late filing of income tax return have been abolished. Rationalization of audit provision has been introduced. In order to facilitate taxpayers who may be subjected to audit repetitively, it is proposed that a taxpayer shall not be selected for audit by the Board more than once in three years through computer ballot. However, under section 177 of the Ordinance, the Commissioner may also select a case for audit in successive tax years on the basis of reasons to be recorded in writing with the approval of Board.
Reduced rate of advance tax on banking transactions by non-filers has been fixed at 0.4%. Recovery proceedings and payment of tax at the time of seeking stay from appellate authority, presently under section 140 of the Income Tax Ordinance, 2001 taxpayers have the option of preventing recovery of tax through attachment of bank accounts etc, if 25% of the tax due is paid by the taxpayer during the pendency of appeal before the Commissioner Inland Revenue (Appeals). In order to provide relief and facilitate taxpayers, the minimum threshold of payment of tax to preclude recovery of tax during pendency of first appeal has been reduced from 25% to 10% of the disputed tax demand.
Maximum threshold for withholding tax under section 153 of the Income Tax Ordinance, 2001 has been changed after 28 years. At present if payments for services rendered exceeds Rs 10,000 and if payments for supply of goods exceeds Rs 25,000, provisions of Section 153 are attracted. Now this limit has been enhanced to Rs 30,000 for services and Rs 75,000 for supply of goods.