A revised form of Wealth Tax Statement for the tax period 2025 has been introduced. This statement has prescribed an additional column, requiring the disclosure of ‘Estimated Current Market Value’ of assets. As explained in the following paragraphs, this requirement needs to be reviewed for the reason that this prescription is against the very concept of wealth statement under Section 116 of the Income Tax Ordinance, 2001.
Wealth Statement as prescribed under Section 116 of the Ordinance is a unique requirement under the Pakistan tax code. There is no such requirement in almost all the countries including India and the UK. This aspect has been explained by the author in his book ‘Taxation of Non-Residents’ published last year. The nature and status of wealth statement has been discussed in detail by former Justice Maqbool Baqir in the Qazi Faiz Isa case.
Wealth Statement is not ‘wholly’ related to income for the year. For example, there can be an increase or decrease in one’s net wealth by an event, which has no relation with the sum chargeable to tax under the income tax code. This may include gifts from brother to sister, etc., or property acquired through inheritance. These transactions, if not included in the wealth statement, cannot lead to any misdeclaration and consequences under the income tax laws as they have no relation with the income which is chargeable to tax under the Ordinance.
Wealth Statement under the Pakistan tax laws is the legacy of Section 22(4A) of the Income Tax Act, 1922 where the tax officers whilst determining the tax liability were authorised to call for a statement of assets and liabilities of that person. Sub-section (4A) was inserted in Section 22 by the Finance Act, 1922 after independence to assist the taxation officers to ensure completeness of income disclosure. India never introduced the same.
Pakistan tax code introduced compulsory filing by way of Section 58(2) of the repealed Income Tax Ordinance, 1979. Under the simple basis of accounting, the statement of assets and liabilities are always at ‘cost’ and these amounts have no relation with the current market value of such assets and liabilities. This is simple accounting which has to be adopted and prescribed.
In order to further dilate on this subject it is necessary to understand the objective of obtaining a wealth statement. The real and practical objective, from the income tax point of view, of obtaining a wealth statement is to identify the ‘increase’ [decrease] in net wealth so as to reconcile the same with the income declared or other adjustment as discussed above. As explained in the aforesaid paragraph, all increases or decreases are not related to income tax; however, whenever a reconciliation will be prepared the items being chargeable to tax or otherwise will be identified, which may assist ensuring complete disclosure of income for the year.
This is the purpose and objective of the wealth statement. Assets represent actual outlay or obligation that has no relation with the market value of such assets or liabilities. Accordingly, for the purposes of income tax law, such valuation has no meaning.
The amount prescribed as estimated market value is a sum, which is not required to be determined by the taxpayer under any provision of the Constitution of Pakistan. The Constitution of Pakistan only allows the legislature to tax income for the year. It can provide additional information such as a wealth statement to arrive at the correct amount of income chargeable to tax. It cannot ask something, which is beyond the rights given under the Constitution. On this ground even wealth statement filing can be challenged under the strict interpretation of law. However, no law can require the taxpayer to determine and disclose the market value / estimated market value of such assets. The prescription as made in the wealth statement prescribed is therefore not as per the Constitution.
In this connection it is important to note that there is a fundamental difference between the wealth statement as required under Section 116 of the Income Tax Ordinance, 2001 and the wealth tax return, which was required to be filed under the repealed Wealth Tax Act, 1963. In the case of wealth tax there was a comprehensive basis of determination of value for the purposes of that tax. India had a Wealth Tax Act, 1957 which was repealed in 2015. It is therefore abundantly clear that there cannot be any requirement to provide the market value of assets.
This is a very important subject. It is not justifiable to make this kind of prescription just two or three days prior to the last date of filing the return of income and wealth statement. It is therefore suggested that this requirement be deleted and, if required, detailed deliberations can be made during the ensuing year.
Copyright Business Recorder, 2025