Pakistan:IMF expresses concern over money whitening schemes

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The IMF’s Mission chief, Jeffery Franks, has expressed concern over the tax incentive scheme announced by Prime Minister Nawaz Sharif, saying that such schemes granted immunity from audit and undermined tax enforcement.

He also said that the IMF’s upcoming review mission scheduled to visit Pakistan by end of January would seek modifications in order to redress its concerns. When contacted in Washington DC about the viewpoint of the Fund on the tax incentive package unveiled by the PML-N led regime, IMF’s Mission chief Jeffery Franks replied that they had some concerns about this package and would seek clarifications during the upcoming round of review talks.

For conducting second review and release of third tranche worth $545 million under 36 months Extended Fund Facility (EFF), the IMF’s mission is scheduled to visit Islamabad from January 28, 2014, and will stay in Islamabad for two weeks Jeffery Franks said: “We strongly support the government’s objective of increasing the number of taxpayers in the system and the amount collected. However, we have some concerns about the tax incentive scheme announced.”

Among other things, he said, the IMF worries as it grants immunity from audits in exchange for relatively modest tax payments, undermining tax enforcement.“During the upcoming review mission, we will work with the authorities to clarify our understanding of the scheme and will seek modifications as needed to address our concerns,” he added.

When asked about the proposed schedule of next round of review talks, he said that the mission would travel to Pakistan from January 28, 2014.The IMF has expressed its concern at a time when recently published report disclosed that there are many parliamentarians who are non NTN holders as well as non filers which forced the government to announce its plan to publish tax directory of parliamentarians by mid of next month.

The FBR, the sources said, issued notifications for tax incentive scheme announced by the PM last month.For money whitening scheme announced by PM Nawaz Sharif, the FBR has given timeframe of two and half year for starting production from the units which will get benefits under this scheme. Under the money whitening scheme, which the FBR tagged it as incentives on investment scheme, the tax machinery has linked it with commencement of commercial activities of those industrial units till June 30, 2016. “This amnesty is not meant for indefinite period as the FBR has given time frame from January 1, 2013, to June 30, 2016, and such units will be bound to start their production within the envisaged deadline,” said the official.The FBR also issued SRO under the PM scheme which would provide benefit to dormant NTN (National Tax Number) holders in the country. A

ll those NTN holders who have not filed returns from last five years could avail this scheme provided they paid at least Rs20,000 tax every year. In such cases, the FBR would not raise any question about them.

The number of NTN holders standing in the range of 3.3 million but the number of return filers were much low.The FBR would also kick-start data cleansing exercise of NTN holders as there were many instances of dormant NTN holders as many such holders did not exist on the ground.The ongoing audit on the basis of last year returns would continue and all those could avail tax incentive scheme on the basis of returns of 2013 who would increase their tax by 25 percent.