Goods declared under two statuses not subject to the CVT: expert

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ISLAMABAD: Former Federal Board of Revenue (FBR) Chairman Shabbar Zaidi said on Friday that assets declared under two special laws, namely the Foreign Assets (Declaration and Repatriation) Act 2018 and the Assets Declaration Ordinance 2019 are not subject to Capital Value Tax (CVT).

He called on the President of the FBR to confirm the said legal position, adding that if there was another point of view, the FBR should inform the legal opinion.

In a letter to the tax authorities, the famous accountant, said that the Finance Law 2022 – in force from July 1, 2022 – introduced a tax on the capital value, adding that the CVT is due for the tax year ended June 30, 2022 (tax year 2022) and subsequent years. The CVT is a tax on assets, he said, adding that the constitution under Federal Legislative List Entry Number 50, empowers the federal government to levy a tax on the capital value of assets.

However, he clarified that this right does not extend to real estate. CVT is therefore not constitutionally enforceable by the federal government on real estate, he said, adding that there is no distinction between real estate inside or outside the Pakistan for this purpose.

Foreign Assets: Foreign Assets have been defined in the CVT 2022 as follows: “Foreign Assets” means all movable or immovable assets held outside Pakistan, directly or indirectly, and includes, but is not limited to, real estate, mortgaged assets, stocks and shares, banks accounts, bullion, cash, jewelry, jewelry, paintings, accounts and loans receivable, assets held in the name of dependents, beneficial ownership or beneficial interests or contribution in offshore entities or trusts:

CVT on assets declared under asset declaration laws: Pakistan has introduced two special laws: the Foreign Assets (Declaration and Repatriation) Act 2018 and the Asset Declaration Act 2019. These were special laws and not the usual tax amnesty regimes.

The underlying purposes of these laws were to allow Pakistanis to declare assets held outside Pakistan without identifying how those foreign assets were acquired by him outside Pakistan despite the restrictive foreign exchange regime of the Pakistan as contained in the Foreign Exchange Regulation Act 1947.

The objective was to immunize these persons against the identification of the sources from which these assets were acquired and against any tax proceedings concerning the assets so declared.

The purposes of the laws were to immunize such persons from any prosecution under the Anti-Money Laundering Act 2010 and to immunize such assets from any other tax under any law currently in force in Pakistan.

Immunity from further tax: Section 8 of the Foreign Assets (Reporting and Repatriation) Act 2018 provided that:

Payment of tax: 1° the due date for the payment of tax due under Article 7 is the date on which the declaration is made under Article 6.

(2) No tax will be payable by the declarant under any law now in force, including the Income Tax Order 2001, where tax has been paid under subsection (1) in respect of foreign assets declared under Article 5.

Paramount effect: the Supreme Court of Pakistan, in the decision reported as IG HQ Frontier Corps and other v. Ghulam Hussain and other (2004 SCMR 1397), held that specific law prevails over general law in particular circumstances.

Copyright Business Recorder, 2022

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