When the then finance minister of Pakistan Asad Umer announced in the beginning of April, 2019, that government was thinking of launching another amnesty scheme for tax on the demand of business community it came as a big shock because it was too soon after the previous amnesty scheme offered last year. It was surprising on one hand because it showed that previous tax amnesty scheme was not successful in tempting the tax evaders to join the regular tax club (or is it not?), and implicit in this demand was admission that there was tax evasion but unwillingness to follow the normal tax code, rather demand to be allowed to pay tax at a nominal tax rate minus penalties. Instead of taking firm action through its premier tax collecting agency, FBR, for this brash admission of tax evasion, the government accepted the demand of the business community and launched the tax amnesty scheme through promulgation of ordinance titled ‘Declaration of assets ordinance, 2019’ on 14th May, 2019.
Normally tax amnesty schemes are offered by the governments to those business people who are involved in tax evasion, are in breach of tax/legal code causing immense revenue loss to the state and society as a concession so that these tax evaders commit to abide by legal code in future and lead the life of law abiding citizens enabling the governments to generate revenues for the benefit of state and society. The amnesty schemes offer waiver of penalties, prosecution for breach of law of land on one hand as a carrot and stick in case the tax evaders do not avail the opportunity and intend to continue their illegal activities.
Tax amnesty schemes are not meant for holders of public office because law maker is conscious that holders of public office may have acquired the undeclared assets by misusing their office in their name or in the name of others who may be their blood relations or not; the latter is known as benami property.
In this perspective this scheme is unique: on the one hand, this offers incentive to tax evaders of legalizing their undeclared incomes, sales and assets that have been created out of money made through economic activities but without paying due taxes under the income tax, sales tax and federal excise laws , but also provides incentive to those holders of public office who may have acquired their assets by misuse of public office they were holding because their official declared emoluments are not sufficient to make the investment thus warranting prosecution under relevant laws by the concerned agencies. Seems unbelievable? yes, but this is what this law offers in the garb of tax amnesty. This is obvious from close reading of the relevant sections from legal perspective. Let me analyze.
This Ordinance in section 5 invites declaration of undeclared assets, sales and income to the FBR. While undeclared sales and income have been defined as sales and income not declared under the sales tax, federal excise duty act and income tax law respectively definition of undeclared asset is very meaningful. It reads as under:
“undeclared asset” means any asset that has remained undeclared or under-declared including any asset held in the name of the declarant or in the name of Benamidar as defined in Benami Transaction (Prohibition) Act, 2017 held on June 30, 2018.
While in case of income and sales reference is to income tax and sales tax law but in case of undeclared asset there in no reference to any law. It means it is not declared in the income tax return nor before any other authority including annual declaration of statement of assets and liabilities required to be filed in the respective office by the holders of public office. However, there is a reference to benamidar in Benami Act, 2017, is quite intriguing., because never in the history of amnesty schemes such reference was made. Let us see how is benamidar defined in the Benami Act.
“BENAMIDAR is a person or a fictitious person, in whose name the benami property is transferred or held and includes a person who lends his name.”
“BENAMI PROPERTY is defined as any property which is the subject matter of benami transaction and also includes the proceeds from such property.”
“BENAMI TRANSACTION is defined as under:
A transaction or arrangement-
(A) Where: a property is transferred / held by a person, and the consideration has been provided to another person; and the property is held for the benefit of the person who has provided the consideration, (immediate or future, direct / indirect), except when the property is held in fiduciary (involving trust) capacity or by spouse, brother, sister, lineal ascendant or descendant, and the individual appear as joint owner and the consideration has been paid out of known resources of income;
(B) carried out a fictitious name; or
(C) where the owner is not aware, or denies knowledge of ownership; or
(D) where the providing the consideration is not traceable or fictitious.’
This is an open secret that in our society normally corrupt holders of public office buy property in the name of other persons so as to conceal their identity and any likely enquiry, legal action, business people do not enter into benami transactions, because they cannot be accused of misusing the official position. (‘Holder of Public Office has been exhaustive defined to include the politicians who have enjoyed the official authority, bureaucrats, judges, attorneys etc.)”
This clearly shows that this amnesty scheme caters to desire of corrupt holder of public office who may be anxious to avoid any legal action for their wrong doings.
The opponents of this argument may claim that this scheme is not applicable to the holders of public office or their blood relations if we look at the provision contained is section 4 (2) that states as under:
‘4 (2) The provisions of this ordinance shall not apply to holders of public office, their spouses, children, sisters, brothers and parents if the children, sisters, brothers and parents are dependent on the holder of public office during the period of the person holding such public office;’
Apparently, this argument looks appealing. But, there is a mischief; what if he (public office holder) has acquired the property in the name of these blood relations and they claim that they were not dependent on him or he purchases the assets in the name of people other than those mentioned above such as his servants etc. In other words, his has made a leeway for the holders of public office to declare the assets without any fear of investigation by the tax authorities. Is it difficult to say that this law has been framed not only help the tax dodgers but also help holders of public office to pull down the shutters against any attack by the tax hounds?
It seems that lawmaker was conscious of the fact that this was not enough to save the corrupt holders of public office because these Benamidars may be questioned about source of the investment in those assets by the agencies other than FBR? Therefore, this law has taken care of this concern too. A provision has been made in section 12 that provides legal immunity to the declared assets from submission as an evidence against the holder of public office or his Benamidar before any court of law. This is what section 12 envisages:
‘Section 12 :‘Declaration not admissible in evidence.— Notwithstanding anything contained in any other law for the time being in force, nothing contained in any declaration made under section 5 shall be admissible in evidence against the declarant for the purpose of any proceedings relating to imposition of penalty or for the purposes of prosecution under any law including the Income Tax Ordinance, 2001 (XLIX of 2001), the Sales Tax Act, 1990, the Federal Excise Act, 2005 and the Benami Transactions (Prohibition) Act, 2017 (V of 2017).’
To reiterate, section 12 of the ordinance says that if tax is paid under this Ordinance at the nominal rate specified by the Benamidars on their ill-gotten assets, those assets could not be produced before any court of law as an evidence of against such like holders of public office even if those assets have been generated out of commission of criminal activities like commission, kickbacks, bribe etc. in other words, this is , inter alia, a code for covering the corruption of holders of public office.
This analysis has tried to prove that besides offering amnesty to business community this law also provides legal frame work for the holders of public office to legalize the assets that they may have been created by misuse of their official position without being asked any questions. Are not the intentions behind this law dubious? Should this law not be questioned in a court of law?
This is unfortunate that a government that has come into power on the basis of slogan of action against corruption is, wittingly or unwittingly, promoting corruption.
