India and Pakistan: Tax Incentive Packages Comparison

  2. Eligible Assets, Sales and Expenditures

ii.         Under the Assets Declaration Scheme, 2019 undisclosed assets, undisclosed sales and undisclosed expenditures could be declared. Benami assets as defined in the Benami Transactions (Prohibition) Act, 2017, acquired or held on or before the date of declaration could be declared.

  ii.         Under the amnesty schemes of 2018 only undisclosed assets and undisclosed income could be declared 4. Assets that can’t be declared:

iv.        Under the Assets Declaration Scheme, 2019 following assets couldn’t be declared:

a)      Any proceeds or assets that are involved in or derived from the commission of a criminal offence;

b)      Gold and precious stones;

c)      Bearer prize bonds;

d)      Bearer securities, shares, certificates, bonds or any other bearer assets.

e)      Undisclosed assets, undisclosed sales and undisclosed expenditure in respect of which proceedings were pending in any court of law

 

  iv. Whereas the amnesty schemes of 2018 following assets couldn’t be declared:

a)     Any proceeds or assets that are involved in or derived from the commission      of a criminal offence

 

b)     Domestic assets in respect of which proceedings were pending in any court of law.

  5. Tax and Default Surcharge:

v.         Under the recent scheme declaration could be made up to the 30th June, 2019, yet, tax could be paid even after the 30th June, 2019 and till the 30th June, 2020. However, payment of tax after the 30th June, 2019 shall attract default surcharge of 10%, 20% 30% and 40% for each successive quarter respectively for the September quarter 2019, the December quarter 2019, the March quarter 2020 and the June quarter 2020.

  v.         In the schemes of 2018, tax was required to be paid along with declaration by the due date i.e. 30th June, 2018 (extended upto 31st July, 2018) and no option of late payment along with default surcharge was present.

 

Tax rates: 2019

S.No. Foreign assets Rate (as a percentage of the value of foreign assets
1. Liquid assets not repatriated 5%
2. Immovable assets outside Pakistan 3%
3. Liquid assets repatriated and invested in Government securities upto 5 years in US dollar denominated bonds with six-monthly profit payment in equivalent Rupees (rate of return 3%) and payable on maturity in equivalent Rupees. 2%
4.  

Liquid assets repatriated

2018

S.No. Undisclosed assets, sales or expenditure Rate of tax
1. All assets except domestic immovable properties 4%
2. Domestic immovable properties 1.5%
3. Foreign liquid assets not repatriated 6%
4. Unexplained expenditure 4%
5. Undisclosed Sales 2%

2018

S.No. Domestic assets

 

Rate (as a percentage of the value of foreign assets
1. Foreign currency held in a foreign currency account in Pakistan as on the 31st March, 2018 and encashed in equivalent Rupees 2%
Foreign currency held in a foreign currency account in Pakistan as on the 31st March, 2018 which in invested in Government securities  upto 5 years in US dollars denominated bonds with six-monthly profit payment in equivalent Rupees (rate of return 3%) and payable on maturity in equivalent Rupees
2. Other assets 5%

There are three main tax amnesty schemes introduced in Pakistan during the last decade. The results achieved from them are depicted in the following table: – 

Amnesty Scheme Number of declarants Collection (Rs. In million)
Voluntary Tax Compliance Scheme, 2016 2,232 5,234
Voluntary Declaration of Foreign Assets/Domestics Assets, 2018 83,000 124,000
Assets Declaration Ordinance, 2019 124,587 67,333

2.3     Salient Features of Tax Amnesty Schemes introduced in India

India has been granting tax amnesty schemes on a regular basis over the years by stating that it is a one-time opportunity for non-compliant taxpayers to come into the tax net. A glance at the schemes introduced by India in the past is as under: –

Voluntary Disclosure Scheme was introduced in 1951. The scheme allowed taxpayers to declare unaccounted cash without any penalty or action. It gathered tax of Rs. 11 crores. The scheme was not successful because the citizens lacked trust in pledges of protection from penalties and prosecution.

Yet another amnesty scheme was introduced through Finance Act, 1965 which permitted declaring of undeclared incomes by paying 60% tax upfront and retaining 40%, with exemption from penalties and prosecution. The Scheme collected tax amounting to Rs. 29 crores. Tax evaders thought that tax at the rate of 60% is on the higher side. Another amnesty scheme was floated in 1965 as the above scheme was not successful wherein tax could be paid in instalments stretching over four years. However, tax revenue through scheme was only Rs 20 crore. National Defense Gold Bonds scheme was granted in the same year which also did not yield the desired results and it fetched tax of only 18 crores

The Voluntary Disclosure Scheme was launched in 1975 which allowed people to show their undocumented incomes of any year and get an immunity from penalty or prosecution. The scheme resulted in tax collection of Rs. 241 crores. The Indian government brought the Special Bearer Bonds (Immunities) Act, 1981. It launched ten-year bonds of Rs. 10000/- face value, with redemption value of Rs. 12000/-. The sales of these bond in 1981-82 was Rs. 964 crores.

Later, many tax amnesty schemes were introduced in various years such as the Amnesty Circulars of 1985, Indira Vikas Patra 1986, National Housing Bank Deposit Scheme1991, the Gold Bonds (Immunities and Exemptions) Act, 1993 and the Voluntary Disclosure of Income Scheme (VDIS)1997.

The major tax amnesty scheme introduced in the last decade is Income declaration scheme, 2016 introduced through Finance Act, 2016. The scheme provided for declaration by any person of his undeclared income by paying tax at 30% , default surcharge at 7.5% and penalty of 7.5% which makes it a total of 45% of his undisclosed income . Any income in the form investment made in any asset located in India was also allowed to be declared under the scheme provided that such asset is acquired from undisclosed income.  The scheme envisaged that there will be no scrutiny or enquiry for persons declaring their income in the scheme and the declarants will have immunity from prosecution. The scheme remained in force for the period of four months.

There is a complete contrast in results achieved from Amnesty Schemes introduced in Pakistan in the year 2016, 2018 and 2019 and Amnesty Scheme introduced in India in the year 2016. The comparison between the aforementioned schemes will help in analyzing features which makes an amnesty scheme effective.

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