ISLAMABAD: The government introduced in the National Assembly on Friday a bill seeking implementation of a four-year tax amnesty scheme that proposes to allow traders to whiten their undeclared profits and gains by paying a nominal tax.

The bill, to be known as Income Tax (Amendment) Bill 2016, was tabled by Finance Minister Ishaq Dar. It aims at ending a deadlock over the issue of banking transactions tax between the Federal Board of Revenue (FBR) and traders.

The amnesty scheme will apply to both non-filers and filers of income tax returns.

Proposed law allows traders to whiten undeclared profits by paying a nominal amount

Before the introduction of the bill in the assembly, Prime Minister Nawaz Sharif had revealed its salient features at a gathering of the business community at the PM Secretariat. He said the scheme would help open a new era of close collaboration between the FBR and traders.

Senators, MNAs, MPAs and persons convicted under narcotics, terrorism and money-laundering charges are not covered by the scheme, according to the proposed law.

The scheme will come into force after approval by both the houses of parliament, which will also decide the deadline for benefiting from the scheme for payment of tax and filing of tax returns for the year 2015.

The FBR expects that the scheme will add more than two million new taxpayers to the tax net. At present, there are hardly one million taxpayers, out of a population of 200 million.

Non-filers

The bill proposes that traders can whiten their undeclared working capital of up to Rs50 million by paying one per cent tax of the declared working capital in tax year 2015. The non-filers will be those traders who did not file any income tax return over the past 10 years.

For tax year 2016, traders will have to declare turnover at least three times of the working capital declared in tax year 2015. For tax years 2017 and 2018, traders will declare turnover on which tax paid is at least 25pc more than the tax paid for the preceding year.

Traders can also opt for turnover tax for the next three years.

The bill proposes three different tax slabs which will be applicable for tax years 2016, 2017 and 2018. Under the slabs, it has been proposed that 0.2pc tax will be charged on declared turnover not exceeding Rs50m. The rate of tax will be a fixed amount of Rs100,000 plus 0.15pc of the declared amount between Rs50m and up to Rs250m. A fix amount of Rs400,000 plus 0.1pc tax will be charged on declared turnover of a trader in excess of Rs250m.

The traders availing themselves of the scheme will be exempted from audit for four years and no question will be asked about their sources of income. Under the scheme, there is no provision to whiten the value of real estate or vehicles, shops, etc, or non-business assets.

Filers of returns

The bill proposes that filers will be those traders who possess National Tax Number and filed one or more income tax returns over the past 10 years. Under this scheme, three options have been proposed for traders.

Under the first option, a trader will have to pay 25pc higher tax than paid in the last return on the basis of taxable income; under the second option, avail himself of three turnover tax slabs; and under the third option, pay a lump sum of Rs30,000 for not paying any tax in the last return.

For tax years 2016, 2017 and 2018, it has been proposed that traders will have to pay 25pc higher tax than paid in 2015 on the basis of taxable income. They can also opt for the three turnover tax slabs for 2016-18.

If a trader fails to furnish a return for any of the tax years 2016, 2017 or 2018 after having furnished a return for year 2015, he will not qualify for this scheme. However, the commissioner of income tax is empowered to monitor the scheme.

The bill proposes amendments to rules for implementation of the scheme. Two different single-page tax returns were also proposed for the two schemes.

The bill proposes that traders deriving income other than trading activities chargeable under the head “Income from Business”, profit on debt, dividend and income from property shall not qualify for the schemes.

FPCCI President Abdul Rauf Alam welcomed the scheme, saying it would help bring non-filers to the tax net and regulate the undocumented economy.

Published in Dawn, January 2nd, 2016