Finance Bill 2019: severe punishment proposed for offshore tax evasion

ISLAMABAD: The government has proposed severe punishment for tax evasion through Finance Bill 2019.

According to commentary on Finance Bill, 2019 by EY Ford Rhodes Chartered Accountants, the country in the recent past had witnessed a lot of hue and cry in respect of undeclared assets / wealth accumulated and held abroad by resident of Pakistan.

Such non-declaration was exposed to severe criticism both on print and electronic media, ultimately resulting in media trial of persons involved.

“While the existing penalty and prosecution provision may generally cater such tax evasions, the Bill now proposes to severely punish taxpayers involved in offshore tax evasions.”

Although, the term offshore tax evasion has not been particularly defined either by the Bill or the Ordinance, internationally the concept refers to a situation where a taxpayer avoids paying taxes in the home jurisdiction in respect of foreign / offshore assets and income.

Hence, if a Pakistan resident evades paying taxes on its foreign source assets and income, it may be regarded as indulging in offshore tax evasion.

In this back drop following definitions are proposed to be inserted in Section 2 of the Ordinance –

— “Offshore asset” in relation to a person, incudes any movable or immovable asset held, any gain, profit, or income derived, or any expenditure incurred outside Pakistan;

— “Offshore enabler” includes any person who, enables, assists, or advises any person to plan, design, arrange or manage a transaction or declaration relating to an offshore asset, which has resulted or may result in tax evasion;

— “Offshore evader” means a person who owns, possesses, controls, or is the beneficial owner of an offshore asset and does not declare, or under declares or provides inaccurate particulars of such asset to the Commissioner;

— “specified jurisdiction” means any jurisdiction which has committed to automatically exchange information under the Common Reporting Standard with Pakistan;

— “unspecified jurisdiction” means a jurisdiction which is not a specified jurisdictions.

— “asset move” means the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion; Corresponding penalties, in respect of offshore tax evasion have also been proposed as under:

— Where an offshore tax evader is involved in offshore tax evasion, a penalty of Rs100,000 or an amount equal to 200 percent of the tax which the person sought to evade, whichever is higher, would be applicable.

— Where, in the course of any transaction or declaration made by a person, an enabler has enabled, guided, advised or managed any person to design, arrange or manage that transaction or declaration in such a manner which has resulted or may result in offshore tax evasion, a penalty of Rs300,000 or an amount equal to 200 percent of the tax which was sought to be evaded, whichever is higher, would be applicable.

— Any person, who is involved in the transfer of an offshore asset to an unspecified jurisdiction by or on behalf of a person who owns, possesses, controls, or is the beneficial owner of such offshore asset for the purpose of tax evasion, from one specified territory to an un-specified territory, shall pay a penalty of Rs100,000 or an amount equal to 100 percent of the tax whichever is higher.

In addition to the above penal exposures, in order to deter the concealment of offshore assets and to maintain effective monitoring of offshore tax evasion, the Bill also proposes to prosecute the tax evader, as provided for under the newly proposed Sections 192B and 195B.

In terms of Section 192B, any person who fails to declare an offshore asset or furnishes inaccurate particulars of an offshore asset where the financial impact of such concealment or furnishing of inaccurate particulars is Rs100,000 or more, the same shall be treated as an offence, punishable on conviction with imprisonment up to 7 years or a fine up to 200 percent of the amount of tax evaded, or both.

Similarly, through Section 195B, the Bill seeks to hold any enabler who enables, guides or advises any person to design, arrange or manage a transaction or declaration in such a manner which results in an offshore tax evasion, the same will be treated as an offence punishable on conviction with imprisonment for a term not exceeding 7 years or with a fine up to Rs5 million or both.

The Bill further proposes to insert a new Sub-section in Section 145 of the Ordinance in terms of which the Commissioner is empowered to freeze any domestic asset of a person including any asset beneficially owned by him, where he has reason to believe that such person who is likely to leave Pakistan may be involved in offshore tax evasion or such person is about to dispose of any such asset.

The asset frozen can be held by the Commissioner for a period of one hundred and twenty days or till the finalization of proceedings including but not limited to recovery proceedings under the Ordinance whichever is earlier.

Finally, the Bill proposes to insert Sub-sections (6B) and (6C) in Section 216 of the Ordinance whereby FBR is empowered to publish the names of offshore evaders and offshore enablers in the electronic and print media.

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