Govt To Go After People Hiding Assets From Sep 1,2018
The amnesty scheme provides last chance to overseas and resident Pakistanis to declare their hidden assets by June 30, 2018 as the government will come into action against those who will try to keep their assets unknown from September 1, 2018.
“Pakistan has signed a multilateral convention with 102 countries that allows signatories to exchange information regarding people hiding assets in these countries from September 1,” Federal Board of Revenue (FBR) Chairman Tariq Mehmood Pasha said while elaborating the scheme to members of the Karachi Chamber of Commerce and Industry (KCCI) on Friday.
The exchange of information among these countries will reveal names of those Pakistanis who are hiding their assets. “The information will allow us to go after those who are unable to justify their assets abroad,” he said.
“As a test case, Pakistan sent a list of 100 Pakistanis to the Dubai tax authority to seek information about their assets there. In the very first week, the tax authority provided complete information about 55 of them, including information about property size, its location and value,” he disclosed.
At the same time, several countries are legislating to scrutinise unknown assets to stop terror financing around the world. The move will pinpoint those who are not able to explain their assets globally, including Pakistanis.
He urged people to declare their assets held abroad by paying a nominal 2-5% value of the property in US dollars and bring back the assets to Pakistan. “This will be in favour of both, the country and them, and help the country to narrow down the widening current account deficit,” he said.
Improvement in the economy, like the current account balance, will help authorities to better negotiate loans with multilateral lenders at a suitable interest rate and will allow rescheduling of the loans.
Pasha, while responding to questions from businessmen, replied that anyone could declare any asset, regardless of the time when the property was bought in the past.
“The law, which previously allowed people to disclose only those assets that were purchased in the past five to six years, has become invalid. The new law demands that people disclose all the assets, no matter when they were established,” he said.
Responding to another question, he said the current anti-money laundering laws did not allow the FBR to permit people to declare assets by using anyone else’s bank account except for their own accounts and those of their family members.
State Bank Revises Manual For Open-Market Foreign Currency Dealers
The State Bank of Pakistan (SBP) revised the manual containing laws for foreign currency dealers in the open market on Friday. The exercise is aimed at consolidating amendments made from time to time in the Foreign Exchange Manual since its issuance in 2017.
The step has been taken ahead of a crucial meeting of the Financial Action Task Force (FAFT), which is due next week. FATF would review what important measures Pakistan has taken so far to stop terror financing. Early this year, the task force warned the country of putting its name in the grey list to monitor its financing activities globally.
In latest amendment to the manual in May, the central bank put a condition that all buy and sell transactions in foreign currency equivalent to $500 or above would require exchange companies to obtain and retain copies of identification documents – CNIC, NICOP or passport in the case of a foreigner.
The move came as Pakistan looked to strengthen the anti-money laundering and combating terrosism financing regime ahead of the FATF meet-up in June, it was learnt.
On Friday, the central bank said the updated manual would facilitate stakeholders including authorised dealers (banks), exporters, importers, travel agents, carriers, etc.
Since the issuance of the updated Foreign Exchange Manual in 2017, several changes/amendments to the foreign exchange regulations have been made. Although the foreign exchange circulars, circular letters, notifications, etc through which these changes/amendments were made, have been posted at the SBP’s website, the same stand incorporated in the Foreign Exchange Manual so that the stakeholders can find the regulations/instructions in a consolidated form in a single document.
The updated foreign exchange manual has been placed at the State Bank’s website for reference of the stakeholders. “It is expected that the use of updated manual by the stakeholders would enable them to comply with the existing rules and regulations governing foreign exchange business more effectively,” it said.
Challenges May Grow With Drop In Ratings Viewpoint
The Islamabad Chamber of Commerce and Industry (ICCI) has expressed fear over the drop in Pakistan’s credit rating outlook from stable to negative in an assessment given by Moody’s credit rating agency.
In a statement, the ICCI termed it an unfortunate development as it indicated further challenges for the national economy and called on the government to take urgent measures to improve the economic outlook.
He pointed to trade deficit as the main reason behind the decline in the ratings outlook and highlighted that during 11 months of the current financial year, Pakistan’s trade gap widened to $34 billion and the current account deficit grew 43%.
“Foreign indebtedness of the country has reached a dangerous level of 70% of gross domestic product (GDP),” he said. “Foreign direct investment has declined 1.3% in 11 months of the current fiscal year.”
Waheed cautioned that if the economy continued to remain fragile, Pakistan would have to go to the International Monetary Fund which would not be in larger interest of the country.
“Pakistan’s foreign debt has crossed $92 billion, but it has not played any positive role in strengthening our economy,” he said. “Going for more foreign debt will cause further trouble for the country. Government should focus on indigenous resources to improve the economy instead of relying on foreign debt.”
He urged the government to take measures for broadening the tax base and provide all possible cooperation and support to the private sector for improving exports.
“With improvement in revenue and forex reserves, our economy could be able to achieve sustainable growth,” he added.
System Introduced To Protect Deposits Of Accountholders
Deposit Protection Corporation, a wholly owned subsidiary of the State Bank of Pakistan (SBP), launched on Friday a mechanism to protect deposits of bank accountholders.
As envisaged in the Deposit Protection Corporation Act 2016, the protected amount has been set at Rs250,000 per depositor per bank. “All commercial banks are members of this scheme and will be paying required premium,” the SBP said in a statement.
The establishment of Deposit Protection Corporation is one of the most important objectives in the SBP’s strategic plan 2016-20. It is part of the strategic goal of strengthening the financial system stability regime.
The corporation is a subsidiary and entirely owned by the SBP under the Deposit Protection Corporation Act. Its “objective is to compensate small and financially unsophisticated depositors to the extent of protected deposits in the unlikely event of a bank failure,” the SBP said.
It pointed out that stability of financial systems was of paramount concern for policymakers around the world and the State Bank had also a comprehensive framework to ensure safety and soundness of the banking system of Pakistan.
“While key pillars of this framework namely strong banking laws and regulations and effective supervision have been in place for a long time, the introduction of deposit protection is a recent addition, which will reinforce the bank regulation regime of the SBP,” it said.
The international standard followed for designing a robust deposit protection scheme is laid out in the “Core Principles for Effective Deposit Insurance Systems” issued by the International Association of Deposit Insurers (IADI). Features of the deposit protection mechanism in Pakistan are mostly in line with these principles.
The SBP emphasised that the launch of a formal deposit protection scheme would be beneficial for Pakistan as it would provide sizable funds through premium payments from banks that could be used to provide immediate liquidity to small depositors in case of a bank failure.
“Such a scheme will not only reduce burden on the exchequer, but will also improve financial stability in the system,” it said.
Calling financial stability one of its top priorities, the SBP emphasised that its effective supervisory regime ensured that depositors did not lose their money and that public confidence in the system remained strong.
It voiced hope that implementation of the deposit protection mechanism would further strengthen the overall regulatory architecture and safety of deposits.
FBR Predicts To Receive Up To $4bn In Tax Under Amnesty Scheme
With an ambitious target of receiving $3-4 billion from non-resident Pakistanis under an amnesty scheme, the government on Friday warned owners of hidden wealth of dire consequences if they failed to declare their assets and legalise black money under the scheme.
“Keeping in view the trend of asset declarations and feedback from tax consultants and chartered accountants, the final figure can be close to $3-4 billion,” announced Federal Board of Revenue (FBR) spokesperson Dr Muhammad Iqbal while speaking at a press conference.
“People who will not avail themselves of the scheme will have to face serious consequences. They should be ready to face action,” he remarked.
When asked about reaction of the Financial Action Task Force (FATF) to the amnesty scheme, Iqbal, who is also senior member of Inland Revenue Policy, said concerns of the FATF had been addressed.
While drafting the scheme, he said, the government also took input from the FATF whose concerns were only related to money laundering.
Responding to a query, he clarified that proceeds of crime could not be legalised under the amnesty scheme, which was available to all citizens of Pakistan except for public office-holders.
He described response to the scheme as very positive, but said last date of June 30 for filing asset declarations would not be extended.
He voiced hope that the government would achieve multiple benefits from the scheme, most important of which was the flow of foreign assets into the country.
“If the scheme is fully successful, the balance of payments issue will be resolved. Moreover, the FBR will also receive tax on the declaration of assets held abroad,” he said.
Replying to another question about the deposit of cash in bank accounts by Pakistanis holding undeclared assets in the country, Iqbal pointed out that such people were not required to deposit cash for availing themselves of the amnesty.
“The government wants to bring back money held by Pakistanis abroad, but we cannot allow them to legalise money by purchasing dollars from local open market,” he said.
He emphasised that the FBR had launched an extensive campaign to make the scheme successful. However, during visits to different chambers and trade bodies, it seemed that there was a little bit of confusion among businessmen and traders. To address that, he said, the FBR then launched an awareness drive.
About the pace of asset declarations, Iqbal revealed that first declaration was made on April 13 or 14 and then it gained momentum.
He asked real estate investors to voluntarily declare their assets as the FBR was equipped with real estate data after the mapping of properties through a survey. He categorically said real estate developers and builders had a unique opportunity to legalise their hidden assets under the scheme.
“Traditionally, people file tax returns close to the last date. Similarly, a large number of declarations are expected in the last few days of the scheme,” he said, adding tax collection under the scheme would be made part of overall FBR’s revenue receipts.
The FBR’s senior member emphasised that ambiguities had been removed from tax laws pertaining to foreign assets under the Finance Act 2018.
According to an amendment made in the Protection of Economic Reforms Act 1992, a person, who is a non-filer of tax return, is prohibited from depositing any cash in any foreign currency account.
Among other amendments in the Finance Act, the FBR has introduced the concept of foreign income and asset statement to be filed by persons having foreign income or assets as specified in the law.
A big change has been made regarding time limitation for opening past accounts/records beyond the period of five years. The FBR can now tax foreign assets from the year of their discovery irrespective of the date of creation of such assets.