Tax evasion: Govt moves to make laws stricter
ISLAMABAD: The government has prepared draft bills to introduce amendments to four relevant laws to declare tax evasion as an offence related to money laundering, aimed at curbing misuse of foreign investment and remittance schemes.
The step is being taken to meet a condition of the International Monetary Fund (IMF) that calls for cracking down on growing tax evasion in the country.
In the tenure of the first PML-N government, parliament had approved the Protection of Economic Reforms Act 1992, which provided a grey area for tax evaders to take their money abroad and bring it back by declaring the proceeds as remittances, portfolio and foreign direct investment.
The amendments will be introduced in the Anti-Money Laundering (AML) Act of 2010, the Income Tax Ordinance of 2001, the Customs Act of 1969 and the Federal Excise Act of 2005. These will allow the use of anti-money laundering tools to combat tax evasion and abuse of the investment incentive scheme to launder criminal proceeds.
Under the IMF condition, the draft bills will be submitted to parliament for initiating legislation before the end of December. Earlier, the deadline was September, which the government missed.
A senior official of the finance ministry confirmed that legal work had been done and bills would be submitted before the due date.
The Federal Board of Revenue (FBR) has also prepared a list of serious tax offences, which will be declared as predicate offences, once parliament approves the amended AML Act.
The Act authorises imprisonment of up to 10 years, imposes a fine of Rs1 million and allows forfeiture of properties.
Through the Economic Protection Act of 1992, the PML-N government had amended Foreign Exchange Regulation Act of 1947, Customs Act of 1969 and Income Tax Ordinance of 1979 and allowed people to take out or bring back foreign exchange without declaring the source of income.
The Financial Monitoring Unit, established under the AML Act, has prepared draft guidelines on the risks of abuse of the investment incentive scheme that will be issued by the end of December.
The government has assured the IMF that it will effectively use the AML framework to curb tax evasion.
Critics see the 1992 Act as an attempt to facilitate money laundering. There is no official study available about how much of the remittances are on account of ill-gotten and hidden money that is re-routed back to the country by using the channel of remittances.
However, unconfirmed estimates suggest that at least 10% to 15% of remittances comprise the illegal money.
Similarly, this money is also said to be invested in the stock market by declaring foreign portfolio investment, according to sources.
Need for AML amendment?
Experts like Dr Ikramul Haq, who has expertise in tax and anti-money laundering affairs, do not see the need for any new legal framework to curb tax evasion.
“The only issue is effective enforcement as existing laws adequately provide the base to move against tax evaders and launderers,” said Haq.
He said the AML Act and the Income Tax Ordinance of 2001 provided all the needed tools to take action against the tax evaders.
Through the Finance Bill 2013, the government inserted Section 165A into the Income Tax Ordinance that provides all the necessary tools for the FBR to move against the evaders. This section overrode the Banking Companies Ordinance 1962, Protection of Economic Reforms Act 1992, Foreign Exchange Regulation Act 1947 and regulations made under the State Bank of Pakistan Act 1956.
It binds banks to report any kind of suspicious transactions to the FBR. There is a statutory obligation on banks to give online access to its central database containing details of account holders and all transactions made in their accounts to the FBR.
However, even after almost one and a half years of the amendment, the FBR has not enforced the law. Even government-owned banks are not reporting suspicious transactions.
