The Pakistan government is considering imposing tax on foreign remittances exceeding $100,000 a year to plug a hole being used for whitening black money in the country.
Under Section 111(4)(a) of the Income Tax Ordinance, the government cannot ask the source of foreign remittance.
The Federal Bureau of Revenue (FBR) and the Supreme Court-constituted first three-member committee was of the view that Section 111 is used to whiten illegally-obtained money from Pakistan by declaring the funds to be foreign remittances.
Promulgating a presidential ordinance to tax remittances exceeding $100,000 prior to upcoming Budget announcement on April 27 remains a preferred choice of Prime Minister Shahid Khaqan Abbasi and will include enforcement of the much-debated one-time offshore tax amnesty scheme for undeclared cash and fixed assets stashed by Pakistanis abroad.
PM Abbasi will on Thursday chair first meeting of the newly constituted Economic Advisory Council and discuss the proposed tax and one-time amnesty scheme with its members.
After the EAC meeting, the prime minister is expected to make a formal announcement in this regard.
“The prime minister’s desires that the amnesty may be enforced through a presidential ordinance and will be embedded into the Finance Bill 2018 subsequently,” sources in the FBR said, according to a local daily The Express Tribune.
The government must first get the approval of the federal cabinet to promulgate the ordinance– after the Supreme Court’s historic August 2016 judgment on the definition of the federal government, every piece of legislation has to be routed through the federal cabinet.
The political leadership however is not ready to take a risk, according to reports, as roughly $19 billion to $20 billion worth of foreign remittances per annum are a major support to Pakistan to handle its external financial accounts. Remittances play a crucial role in Pakistan’s economy, providing a much-needed inflow of dollars to boost foreign exchange reserves.
At $19.3 billion in fiscal year ended on June 30, 2017, Pakistan ranks fifth in the world that receives the most remittances every year by more than 9 million of its nationals abroad. The country receives most of its remittances from the Gulf countries, but, within the region, Saudi Arabia and the UAE stand out.
Meanwhile, some have been advocating domestic assets amnesty as well.
According to one estimate a minimum of $100 billion of the domestic economy was undocumented. Another estimate puts the figure of parallel economy as high as 78 percent of Pakistan’s GDP (US$304Bln). That amounts to a whopping US$237Bln.
The country’s real estate sector comprises around 50% of the parallel economy and it has been the most lucrative cul-de-sac for parking funds due to huge differences between the fair market value of properties and the deputy collector rates– some say the difference is as high as 10 times DCR in some cities.