Government urged to withdraw key tax avoidance provisions from law
The government should immediately withdraw key tax avoidance provisions from the income tax law and investigate sources of foreign remittances under section 111(4) of the Income Tax Ordinance 2001 and other blanket amnesty/immunity clauses in the tax laws through Statutory Regulatory Orders (SROs).
A tax lawyer Waheed Shahzad Butt told Business Recorder here on Monday that there are many instances in the income tax law which are used for tax avoidance. For instance, Section 111(4) of the Income Tax Ordinance, 2001 provides inbuilt life time tax amnesty scheme to tax evaders under the umbrella of tax avoidance. Section 111 is related to unexplained income or assets, a provision that does not apply to an unlimited amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed in rupees by a scheduled bank and a certificate from such bank is produced to that effect. The Federal Board of Revenue (FBR) has tried to propose amendments to Section 111(4) pertaining to the un-explained assets or income of the Ordinance 2001, but the policy makers are not ready to accept it.
He said that tax avoidance schemes offer not only negligible or even zero taxes, but also provides facilities to avoid tax within the legal framework. Tax avoidance schemes help already resourceful persons to keep their untaxed money away from the tax man that should be spent on schools, hospitals, roads and other public services activities. Tax avoidance schemes force the poor citizens to pay taxes that should have been due from the influential.
He said that various SRO(s) issued by the Government also provide blanket exemption if investment in business is shown in the latest version of SRO 1065/2013. Under this notification, the source of investment would not be probed under section 111 of the Ordinance if (i) the money is used to invest in greenfield industrial undertaking directly or as an original allottee in the purchase of shares of a company establishing an industrial undertaking or capital contribution in an association of persons establishing an industrial undertaking; (ii) investment made by an association of persons in an industrial undertaking and investment made by a company in an industrial undertaking if the said investment is made on or after the 1st day of January, 2014, and commercial production commences on or before the 30th day of June, 2016; and (iii) investment in construction industry, corporate sector, low cost housing construction in the corporate sector, livestock development projects in the corporate sector, new captive power plants and mining and quarrying in Thar coal, Balochistan and Khyber Pakhtunkhawa.
Tax avoidance is available in legal form in SRO1065(I)/2013 which allows tax exemption on investment in business. Black money can be used for investment by taking benefit of the legal clause available in the law. Tax avoidance is the state sponsored legalised form of immorality, Butt added. Instead of paying statutory rate of 35 percent tax, avoidance is available through state sponsored SRO, where tax officer cannot question the source of investment. Such kind of tax avoidance in legal form is an evasion, he added.
An income tax provision also relates to exemption from income tax in export related software services.
He said trusts are also a source of tax avoidance. He further said that the income tax exemption is available on profits and gains derived by a taxpayer, from a fruit processing or preservation unit set up in Balochistan Province, Malakand Division, Gilgit-Baltistan and FATA between the first day of July, 2014 to the thirtieth day of June, 2017, both days inclusive, engaged in processing of locally grown fruits for a period of five years beginning with the month in which the industrial undertaking is set up or commercial production is commenced, whichever is later. This exemption is also available for avoiding tax.
He further revealed that the income tax exemption is available on the profits and gains derived by a taxpayer, from an industrial undertaking set up by 31st day of December, 2016 and engaged in the manufacture of plant, machinery, equipment and items with dedicated use (no multiple uses) for generation of renewable energy from sources like solar and wind, for a period of five years beginning from first day of July, 2015. This exemption is also available for avoiding tax.
The tax exemption is available on profits and gains derived by a taxpayer, from an industrial undertaking set up between 1st day of July, 2015 and 30th day of June, 2016 engaged in operating warehousing or cold chain facilities for storage of agriculture produce for a period of three years beginning with the month in which the industrial undertaking is set up or commercial operations are commenced, whichever is later. This exemption can be used to avoid tax.
Income tax exemption is available on profits and gains derived by a taxpayer, from an industrial undertaking set up between the first day of July, 2015 and the 30th day of June, 2017 for establishing and operating a Halal meat production unit, for a period of four years beginning with the month in which the industrial undertaking commences commercial production. The exemption under this clause shall apply if the industrial undertaking is owned and managed by a company formed for operating the said Halal meat production unit and registered under the Companies Ordinance, 1984 and having its registered office in Pakistan. This kind of exemption can be used to avoid tax.
Under the income tax law exemption has been granted to profits and gains derived by a taxpayer, from an industrial undertaking set up in the Provinces of Khyber Pakhtunkhawa and Balochistan between July 1, 2015 and June 30, 2018 for a period of five years beginning with the month in which the industrial undertaking is set up or commercial production is commenced, whichever is later. Such kind of exemption may be used to avoid tax, he added.