Probe into offshore companies: FBR explains its limitations


WEB DESK: Federal Board of Revenue (FBR) Member Inland Revenue Policy Rehmatullah Khan Wazir has said the FBR is not legally empowered to open up cases of filers and non-filers beyond six-year and five-year periods, respectively, for probing the owners of offshore companies.

On the issue of probing tax records of offshore companies, he informed the Senate Standing Committee on Finance on Tuesday that the FBR cannot probe tax records beyond 5 years period for filers of returns and six years period in case of non-filers.

The amendment in law was made through the Finance Bill in 2010 for curtailing this period from 10 years to 5 years. The FBR has the authority under the existing law to open up cases of resident filers and non filers for last six and five years respectively who have made investments in offshore companies.

There is an anomaly in the existing income tax law which needs to be corrected. In case of filers, there is a period of 6 years whereas for non-filers the period is of 5 years. Since 2010, we cannot open past records beyond the said period under the law.

In case of non-filers, the returns can be enforced for a period of past five years. Most of the reportedly offshore companies were formed prior to these years. If the past period is beyond 5 to 6 years, the FBR cannot probe or tax them beyond the said period.

Prior to 2010, the FBR was empowered to go beyond the past period of five years for probing tax records, he maintained. FBR Member Inland Revenue Policy further said the global income of the resident person is taxable.

In case of a non-resident person, the global income cannot be subject to tax. The taxability has been done on the basis of residency and not nationality. Under the Pakistani tax laws, the residency status is important as compared to nationality.

When committee members asked about tracking the record and tax data of offshore companies, Rehmatullah Khan Wazir stated that the FBR in collaboration of Nadra can have access to CNIC holders’ data which can be used.

However, on a specific query about the number of years FBR can go back for analysing data or probing tax records, FBR Member Inland Revenue Policy said it depends on the type of data and sensitivity of record, as wealth statement information has to be kept forever.

Since FBR has data in electronic format, which is being maintained since 2004-2005. The FBR has record of 10 to 12 years, but it is very difficult to maintain manual records.

Senator Kamal Ali Agha questioned about the rationale behind changing the law in 2010 about probing tax record. FBR Member Inland Revenue Policy responded that it is the Parliament that decided in 2010 to effect an amendment in the law possibly in accordance with taxpayers’ demand.

He further elaborated that the amendment in the law was made through Finance Bill 2010 through which FBR’s powers to open up cases for declaring their income was scaled down to 5 years period from 10 years.

Broadly speaking, there are two types of offshore companies. The first category is a company where investor has made investment aboard after payment of tax. It is a legal company. There is no law in Pakistan which prohibits the Pakistanis from investing in offshore companies.

The second category is that the tax has not been paid or amount has not been declared in Pakistan. There are three major income tax provisions to deal with such undeclared investment including section 111 and section 114 of the Income Tax Ordinance 2001.

Quoting sections 114 and 111 of the Income Tax Ordinance 2001, he said the law empowered the FBR to open up cases of last six years in case of filers to ascertain whether resident Pakistanis declared their offshore companies in their wealth statement or not.

In case of non-filers the FBR could open up cases of last five years. “Most of the companies were established prior to 2010 so the FBR does not have powers to probe beyond five-year period,” he said. However, some companies were established even in 2015 so those could be scrutinised.

He said the FBR does not have a tax treaty with Panama so they were unable to seek information. When asked by the Senators whether the FBR would term it concealment by those who did not declare their income through declared returns, he said the FBR could not label it as concealment as. In case of residents owning assets abroad were bound to declare it through returns which could become taxable.

Later, the Senate Committee decided that an independent meeting would be held on the issue of offshore companies to discuss the issue. The Senate committee also took up the issue of 386 imported vehicles stuck at Peshawar Dry Port since 201 as the FBR told the committee that the department approached High Court against the decision of appellate tribunal and Federal Tax Ombudsman.

The committee members observed that the FBR approached the High Court when the Parliament took up this issue. The Member Customs informed the committee that tyres of stuck vehicles were flat and accessories were also stolen.

After a heated debate, the committee members unanimously decided to recommend the FBR for withdrawing the case from High Court and provide 386 vehicles to owners by clearing them as after a passage of three years the stranded vehicles might have already suffered irreparable damage. – Business Recorder

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