FOREIGN ASSETS TAX ACT, 2017 (PROPOSED) - FIVE THINGS YOU NEED TO KNOW

The Federal Board of Revenue (FBR) in collaboration with Tax Reform Commission Implementation Committee (TRIC) is in process of finalising the anticipated Foreign Assets Tax Act, 2017. The basic features of the proposed law have already been drafted.

Under the initial draft the foreign assets tax shall be introduced soon through the Foreign Assets Tax Act, 2017.

The proposed Act would deal with the problem of undisclosed foreign assets, income and expenditures, and to provide with procedure to impose tax on any such undisclosed asset and expenditures held or incurred outside Pakistan. 

Following are the 5 things you need to know about the proposed Foreign Assets Tax Act, 2017. 

1. SCOPE OF FOREIGN ASSETS TAX ACT, 2017

As per the initial reports and sources the scope of Foreign Assets Tax Act, 2017 shall be the legalisation of:

• Undisclosed Foreign Assets held outside Pakistan;
• Undisclosed Income earned outside Pakistan; or
• Undisclosed Expenses incurred outside Pakistan

This would cover any undisclosed foreign assets/income/expenditure including financial interest in an entity held by declarant in his name or where he is the beneficial owner and has no explanation regarding source of investment.

The government is considering introducing a scheme for voluntary disclosure of the above assets, income and expenditure in the meantime.

2. VALUATION

The undisclosed foreign asset, income, expenditure shall cover total amount of the value of such an asset, income or expenditure.

The said value shall be the cost an asset acquired/created outside Pakistan converted into Pakistani rupees at the conversion rate specified by the State Bank of Pakistan reduced by the amount of borrowing incurred by such person which remains outstanding as at June 30, 2016. Such the borrowing shall only be deductible if acquired through verifiable sources.

The rates discussed below are to be applied on the total value of such asset, income and expenditure as discussed above.

Where the cost is not identifiable the net market value shall be used for the valuation of the same.

The declarant can opt to invest out of the amount in Pakistan Foreign Currency Investment Bond to be floated by the Government of Pakistan.

3. RATE OF TAX

As per the initial draft the tax slab to be prescribed under the First Schedule of the said law shall be as follows:

• For foreign Pakistanis shall be 2% for the assets located outside Pakistan held for more than five years up to June 30, 2016.

• Foreign Asset Tax is proposed to be 5% on income/assets located outside Pakistan to be repatriated through official banking channels into Pakistan and receipt attached with the declaration 

• 7.5% for assets located outside Pakistan for which only declaration is made; and 

• Foreign currency and bearer assets may be legalised on payment of 15% Foreign Assets Tax.

4. DECLARATION

The declaration as per the prescribed formt under the Foreign Assets Tax Act, 2017 shall be delivered to the concerned Commissioner Inland Revenue/Officer Inland Revenue as notified by the Board on receipt of which the declarant shall be issued with relevant acknowledgement. 

The undisclosed foreign asset/income/expense can be declared in consolidated form for all years or separate for each individual year.

The contents of any declaration made by the taxpayers under the Foreign Assets Tax Act, 2017 shall be confidential and the confidentiality shall remain intact with the provisions of Section 216 of the Income Tax Ordinance, 2001.

5. PAYMENT/DISCHARGE OF TAX 

The basic concept of the scheme reveals that tax payable on the undisclosed foreign asset/income/expense shall be paid through banking channel in foreign currency converted into Pakistani Rupees on or before furnishing declaration and shall be accompanied by evidence thereof.

After the tax has been duly discharged the declarant is authorised to incorporate such foreign assets/income/expenses into his books of accounts.

The declarant shall not be liable to any further tax or penalty under the Income Tax Ordinance, 2001 if the tax as discussed above is duly paid under the Foreign Assets Tax Act, 2017 (proposed).

Where the tax has been dully discharged the declarant shall not be subject to any further proceedings. However, in case of rectification of mistake in the declaration a show cause notice might be served requiring to meet the deficiency or explain the mistake/omission within 30 days of the serving of said notice. 

Source: https://fp.brecorder.com/2017/12/20171220328618/