A Serious Effort or An Election Gimmick?
Tax amnesty is generally offered to taxpayers to offer them an opportunity to disclose income or assets accumulated through untaxed sources and to pay their unpaid taxes. It generally takes the form of reduced or no interest or penalties and freedom from prosecution. Tax amnesties are announced to stop tax evasion, increase tax compliance and to raise additional revenue for balancing the budgets.
By signing the Multilateral Convention on Administrative Assistance in Tax Matters (hereinafter the Convention) of the Organisation for Economic Cooperation and Development (OECD), on 14 September 2016, Pakistan entered into commitment with the OECD member countries with regard to automatic exchange of information concerning tax matters. The Convention enables the signatories to seek assistance in tax examination for preventing base erosion and profit-shifting, as well as curbing tax evasion. The most important aspect of the Convention is that almost all the tax-haven jurisdictions are its signatories and, therefore, non-compliance leading to tax evasion can be effectively controlled with the cooperation of these jurisdictions.
Pursuant to Article 6 of the Convention, Pakistan signed the Multilateral Competent Authority Agreement on Automatic Exchange of Information (AEOI) agreement in tax matters on a reciprocal basis on 7 June 2017. Under the AEOI agreement, the member countries are bound to exchange information, upon request of one state to the applicant state or automatically exchange information regarding income or capital, information obtained during examination of a taxpayer affairs, information obtained in the course of simultaneous examination in each state concerned and information obtained through tax examination by a representative of the tax administration of one state in the requested state.
Being a signatory to the AEOI agreement, the Pakistani tax authorities could seek information on banking and other details of resident Pakistanis from the member countries from the tax year 2018 onwards and even for earlier periods about tax matters involving intentional conduct, which is liable to prosecution. Pakistani tax authorities are commencing automatic exchange of financial accounts information from September 2018 onwards. Consequently, the tax authorities will receive detailed information about banking and other financial channels of the resident Pakistanis automatically each year from other countries and jurisdictions. The automatic exchange of information will expose hidden offshore accounts and assets of the resident Pakistanis to tax authorities and will, therefore, curtail cross-border tax evasion.
In view of the provisions of the AEOI, agreement it was imperative to provide an opportunity to people holding fixed assets and liquid assets abroad to declare them with the tax authorities of Pakistan.
Therefore, on 5 April 2018, the Prime Minister of Pakistan announced the Tax amnesty Scheme for Declaration and Repatriation of Foreign Assets to bring in the amounts through formal channel. Additionally, the tax amnesty provides one-time opportunity to people holding undisclosed domestic assets to declare them voluntarily.
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