The amended amnesty scheme through a Presidential Ordinance has inserted an explanation prescribing that the exchange rate prevailing on the day of declaration is to be used for the purpose of valuation of the foreign assets. This has been mentioned in the explanation of a leading tax expert Ashfaq Tola on the amendments made in the Foreign Assets Declaration and Repatriation (Amendment) Ordinance, 2018 and Voluntary Disclosure of Domestic Assets (Amendment) Ordinance, 2018.
According to the tax expert, the original foreign act prescribed the valuation of foreign assets to be the cost of acquisition at minimum. However, there were differing opinions with respect to exchange rates to be used for valuing such assets. The amendment has brought a fundamental change and has inserted an explanation prescribing that the exchange rate prevailing on the day of declaration is to be used for the purpose of valuation of the foreign assets. He believed that the above amendment, is in contradiction of provisions of section 5(2) read with section 2(d) of the original foreign act which defines fair market value as: "?fair market value means price of foreign asset determined and declared by a declarant himself, but in no case is less than the cost of acquisition of the foreign assets."
In the original foreign act, assets were categorized into liquid and immoveable assets. This categorization was not exhaustive as it did not cover moveable assets which were not liquid (eg, advances, receivables, etc). The amendment has covered such assets also and has categorized the same with liquid assets not repatriated to be charged tax at 5%.
Vide an explanation, it has been clarified that in case a declarant remits payment of tax or repatriation or cash to State Bank of Pakistan ("SBP") by July 31, 2018 and payments are realized in SBP after July 31, 2018, such payments and declarations shall be treated as valid if the declarant has filed draft declaration, created PSID and has provided evidence to SBP that the payment was remitted on or before July 31, 2018.
He said that the amendment has clarified that the assets declared under the Act shall be taken in the books of accounts for tax year 2018. Previously it was not clarified that in which tax year the declared assets are to be accounted for.
The amendment has added a new section, whereby, revision of already filed declarations may be filed by the due date i.e. July 31, 2018. However, the revision is allowed only in case where the value of asset and tax thereon is not less than the value of asset and tax thereon declared in the original declaration. However, procedure for revision of return has not been prescribed yet, Ashfaq Tola explained.
Through an explanation, it has been clarified that any income which was not required to be disclosed as on April 9, 2018 is not eligible to be claimed under the scheme. This means that any income derived by a resident Pakistani after July 01, 2017 or any foreign income earned by a non-resident Pakistani is not eligible to be declared under the scheme.
As per section 4(b) read with section 2(b) of the original domestic act, only those undisclosed income or domestic assets were excluded from the scheme with respect to whom proceedings were pending before Appellate Tribunal Inland Revenue, High Court or Supreme Court. The fundamental amendment has further restricted the undisclosed income and assets with respect to whom proceedings under Income Tax Ordinance, 2001 ("ITO") has attained finality.
The amendment has clarified that the assets declared under the Act shall be taken in the books of accounts for tax year 2018. Previously it was not clarified that in which tax year the declared assets are to be accounted for.
Ashfaq Tola further explained that the amendment has added a new section, whereby, revision of already filed declarations may be filed by the due date, ie, 31st July 2018, subject to the condition that the revision is allowed only in case where the value of asset and tax thereon is not less than the value of asset and tax thereon declared in the original declaration. However, if the revision is due to the reason that such undisclosed income was declared which was not required to be declared, the condition above shall not apply. However, procedure for revision of return has not been prescribed yet.
He was of the view that the amendment in domestic act has excluded incomes earned after July 01, 2017 from undisclosed income to be declared under the act. However, there has not been introduced any amendment to the similar effect under foreign act. Although, undisclosed foreign income was not covered under the original foreign act too, however, the same was covered indirectly under assets as any income earned will be in form of some asset (unless expensed) at the cut of date, ie, 9th April 2018. Moreover, in case of domestic assets too, income earned after July 1, 2018 will be in form of some assets (unless expensed) at the cutoff date. Such exclusion has created anomaly both within the domestic act and between domestic and foreign act and will be a cause of confusion amongst the taxpayers.
As per section 4(b) read with section 2(b) of the original domestic act, only those undisclosed income or domestic assets were exclude from the scheme with respect to whom proceedings were pending before Appellate Tribunal Inland Revenue, High Court or Supreme Court. The amendment has further restricted the undisclosed income and assets with respect to whom proceedings under ITO has attained finality. This further restriction is beyond scope of original provisions of law.
It was suggested that the extension in time should be subject to increased tax rates so that there is a sense of urgency in the minds of taxpayers. We believe that such extension without increased tax rates may create a hope amongst taxpayers that the due date may further be extended, thereby, resulting in ineffectiveness of the scheme, Ashfaq Tola added.