5-C, 2nd Floor, Khayaban-e-lttehad, Ph'lse VII, Defence Housing Authority, Karachi. ~TRANSPARENCY Tel: (92-21)-35390408, 35390409, Fax: 35390410 ~ INTERNATIONAL-PAKISTAN E-mail: ti.pakistan@gmai l. com Website: www.transparency.org.pk 5111 December, 2016 Honorable Justice Anwar Zaheer Jam ali, Chief Justice of Pakistan, Supreme Court of Pakistan, Constitutional A venue, Islamabad. Attn: Human Rights Cell Sub: Prayer for taking SUO MOTO action on Financial NRO in form of perpetual Tax Amnesty Approved by the National Assembly legitimize 97% illegitimate income (collections from Bribery, Bhatta collection, Tax Evasion, Black Marketing Ransom), by paying 3% Tax to FBR. Respectfully Sheweth, I. My Lord, the Transparency International Pakistan is requesting the Honorable Court to take action on the financial NRO in form of perpetual and open ended tax amnesty approved by the National Assembly on 30111 November 2016. 2. On November 28, 2016, the Standing Committee on Finance and Revenue ofthe National Assembly approved yet another amnesty scheme facilitating dirty money in real estate sector, despite protest and walk-out by the Opposition. This amnesty is included in Income Tax (Amendment) Act, 2016, approved by the Parliament on November 30, 2016 as Money Bill (Annex-A). 3. This Money Bill, presented in the National Assembly by Senator Muhammad Ishaq Dar, Minister of Finance, Revenue, Economic Affairs, Statistics and Privatization, was passed on 30.11.2016. It cleverly avoids use of any word like, "Tax Amnesty", "Investment", "Whitening Scheme", as has been the case in most of the previous Amnesty Schemes. Announced by the Federal Government. The exact provision providing for 3% amount as advance income tax to legitimize the remaining 97% illegitimate income (collections from Bribery, Bhatta collection, Tax Evasion, Black Marketing Ransom), is called the Income Tax Amendment Act 2016. 4. The most lamentable and shocking aspect of this provision is blatant discrimination under Article 25 ofthe Constitution oflslamic Republic of Pakistan--it is a slap on the face of all honest taxpayers, who have been paying taxes diligently. Gross violation of supreme law of the land has committed by passing Income Tax (Amendment) Act, 2016 under provisions of Para 2, Amendment of Ordinance XLIX of2001, (2), (c); Explanation (2). And Para 4 new section 236W. i. Para 4. 236W Tax on purchase or transfer ofany immovable property shall at the time of registering or attesting the transfer shall collect from the purchase or transfer advance tax at the rate ofthree percent ofthe amount computed under clause (c) ofsub section (4) ofsection III. ii. Para 2, Amendment of Ordinance XLIX of2001, (2), (c); Explanation (2) where a person has paid tax under section 236W the person shall be entitled to incorporate in the books ofaccounts the amount computed under this clause in tangible form. 1 A '"lr\t.l DADTI~At..l IU" .. I """"r-•T ,....,.... ,,..... ,,... .. ,a- • ••· - - - ---· ·--·-·· ~TRANSPARENCY Continuation Sheet No ......... .::;/INTERNATIONAL-PAKISTAN 5. The Income Tax (Amendment) Act, 2016 allows people to keep 97% oftheir tax evaded money, a move which tax and legal experts say grants a free license for earning black money through Bribery, Bhatta collection, Tax Evasion, Black Marketing and Ransom. 6. The Income Tax (Amendment) Act 2016, financial NRO, is not limited to a specific duration, but is timeless and perpetual incentive of Corruption and License to earn illegal money through Bribery, Bhatta collection, Tax Evasion, Black Marketing and Ransom 7. Standard maximum income tax on individuals is 35%. Failing to pay the tax within the given time gets a 100% penalty. You are then liable to pay 70% of your income as tax. Because ofthis new scheme, people will only be required to pay 3% of their income. 8. Another serious burden on honest tax payer, who is already paying tax to FBR annually, and he/she will also have to pay 3% as advance tax to FBR. Is this a penalty imposed on Honest Tax payers by the National Assembly, and is it not a warning to everyone not to be HONST. 9. This tax amendment has the potential to destroy Pakistan' s tax infrastructure completely. It will encourage the tax evaders and the corrupt as it has put premium for being honest. 10. The Income Tax (Amend men)Act 2016 extend yet another amnesty for owners of dirty money by amending section 111 of the Income Tax Ordinance, 2001 giving them facility to pay just 3% of difference of valuation as per FBR's rate and that of local authorities and no question would be asked about the source of money for purchasing property is simply despicable. 11 . On October 18, 2016, the Chairman FBR, Nisar Muhammad Khan, informed the Senate Standing Committee on Finance that no amnesty scheme was under consideration for the real estate sector ('Real estate sector: No amnesty scheme under study: FBR', Business Recorder, October 19, 2016). He asserted: "We must know about the source of difference amount between DC rates and the FBR notified rates". The Chairman FBR revealed that Standing Committee on Finance of National Assembly wanted either one time exemption in respect of difference between the two rates or that a fix tax should be charged. He said the tax authorities were not in agreement to suggestion of National Assembly Standing Committee on Finance of giving one time exemption or imposing a fix tax. While assuring that no amnesty scheme was to be announced, he added that "the FBR has no powers to introduce tax amnesty scheme and if government ever decides to do so, she would route through the Parliament". Chairman FBR claimed that some sectors have been very hard to bring into the tax net and real estate sector under valuation was one of them. The government, he said, introduced some measures to address the issue of under valuation and sector raised objection to them. 12. Haroon Akhtar Khan, Special Assistant to the Prime Minister on Revenue, on November 17, 2016 made a public statement in Karachi that "the Government is against any amnesty" and "after passage of the Finance Bill 2016 property would be brought into the tax net and price of property would be evaluated by third party under notification of State Bank of Pakistan and real estate will no longer be a safe haven for black money". The nation has been deceived and fooled by FBR and Mr. Haroon Akhtar Khan. 13. Mr. Umar Cheema has informed in his article in January 2016 about how the TAX Evaders availing Tax Amnesty Scheme in 2008 transferred his illegitimate money, whitened by FBR in Pakistan, to US and invested in real estate. Annex-B. 2 ~TRANSPARENCY Continuation Sheet No ......... .:I INTERNATIONAL-PAKISTAN i. A budding entrepreneur of a leading business family in Pakistan popped up on the radar ofAmerican tax authorities in 2008 to invest 23 million dollars in the real estate ofNew York. ii. Upon questioning about his funding source, he said the money was brought from Pakistan. The investigators subsequently wrote to Federal Board of Revenue inquiring whether the transferred funds were taxed in Pakistan or not. iii. An amnesty scheme of the PPP government was in the offing by the time allowing rich Pakistanis to whiten black money by paying only two percent taxes. It could generate only Rs. 2.8 billion; of this amount, Rs. 40 million was contributed by the scion of the rich family facing the inquiry in America. iv. The FBR, instead of using this opportunity to recover the due amount of tax, wrote to its counterpart in the US that the money was taxed in Pakistan without mentioning that the person under question was the beneficiary of an amnesty scheme and had not paid a penny before, revealed an official privy to details. v. Here questions arise about the efficacy of amnesty schemes and whether the latest move by the P ML-N government for luring traders into the tax net through yet another amnesty will be beneficial in the absence ofFBR reforms. Note: In 2008 it is reported that no individual paid Rs. 40 million to whiten US $ 23 million, as the highest payments received was from Media Group Company which paid Rs 24.95 million on unexplained income of Rs 1247.499 million and from Individual Anver Majeed paid Rs 7.44 million to whiten Rs. 372 million tax evasion on account of Salary, and case against ITS 2008 is lingering on in FBR on FTO Orders since last 6 years. Many renowned politician, hoteliers, business tycoons also were benefitted to whiten their illegal money. Annex- C. FBR statement quoted by Umar Cheema in 13.iv above also needs to be probed on the role of FBR as Collection from ITS 2008 was Rs 1542 Million and how one individual alone contributed 2.8%. Annex-D. Also FBR has to explain whether in the 2008 Amnesty Scheme, the illegal money was allowed to be remitted after FBR whitened it? lf not, why FBR did not took action on report from US Government. 14. Transparency International Pakistan on 2.1.2016 also sent a leer to the Honorable Court, SUO MOTO action on forthcoming Financial NRO in form of tax amnesty scheme, voluntarily tax registration and voluntary declaration of assets, in the HRC No 38448-S/2013. Annex-E. 15. In October 2016 the similar Amnesty granted to Corruption Accused (including Tax Defaulters) under NAO 1999, Section 25, Voluntary Return, has been stopped by the Honorable Court, in the Suo Mota Case 17 of 2016, (Action taken by this court to examine the vires of Section 25 (a) of NAB Ordinance 1999). Following remarks of the honorable court in its Order dated 24.10.2016.