ISLAMABAD: The Federal Board of Revenue has decided to collect information on money earned by Pakistani singers, artists, cricketers and investors in India and Bangladesh and verify their declarations, source of income and tax payments under an international convention.
Sources told Business Recorder here on Monday that the FBR will invoke the provisions of the Saarc Limited Multilateral Agreement on Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matter (Saarc-LMA) for collection of data about Pakistani business units, who have made investments in India and Bangladesh or signed contracts/agreements in these countries.
The purpose of the entire exercise is to check whether the income earned aboard has been properly declared in income tax returns in Pakistan. A number of cricketers and artists visit India frequently and earn large sums of foreign exchange which needs to be declared in their income tax returns. The FBR has advised the Chief Commissioners of Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) to exercise powers under the Saarc-LMA for collection of relevant information from the Saarc Member States.
The FBR issued an income tax circular 6 of 2012 here on Monday giving instructions to the field formations to exercise powers under the Saarc-LMA.
In its directive to the Chief Commissioners of the LTUs/RTOs, the FBR said that the Saarc-LMA, to which Pakistan is a signatory, was signed during the 13th Saarc Summit held in Dhaka, on November 12-13, 2005, and entered into force on December 27, 2006. Upon completion of the requisite formalities concerning ratification by all the Member States, the Secretary General, Saarc’s Secretariat, Katmandu, notified on April 19, 2010 that the agreement shall have effect in the Member States from the date of commencement of their respective fiscal year following the issuance of the notification.
Accordingly, the Saarc-LMA has come into effect in each of the Saarc state. For example, the date of effectiveness of Saarc-LMA in India and Bangladesh was April 1, 2011 and July 1, 2010.
The FBR said that the Article 5 of the Saarc-LMA empowers and obligates the Member States to “exchange such information, including documents and public documents or certified copies thereof, as is necessary for carrying out the provisions of this Agreement or the domestic laws of the Member States concerning taxes covered by this Agreement insofar as the taxation thereunder is not contrary to this Agreement.” Article 6 of the Saarc-LMA also empowers the Member States to approach each other to seek assistance for the recovery of revenue claims from the persons residing in other Saarc states.
Accordingly, all field officers while examining the cases of taxpayers with income-generating sources or business connections in any of the Saarc countries must bear in mind that they need to invoke Article 5 of the Saarc-LMA to seek all legitimate tax information about their taxpayers from within any of the Saarc members – as long as the information that they are seeking is covered by Article 5 and has value in terms of expected additional revenues. Such an effort could be of substantial value in respect of artists, players, IT experts, consultants, local textile industry entrepreneurs branching out into regional countries (eg Bangladesh), and portfolio investors into Indian and other regional stock markets. Legally, information pertaining to a period after the Saarc-LMA had come into effect in a particular state could only be requested.
Thus, from now on, invoking Article 5 of the Saarc-LMA would be taken as a mandatory checklist point of all audits, the FBR maintained.
The minimum time which is needed to process information exchange references at the international level is six months. Keeping in view the legal requirements of both the Saarc-LMA, and the domestic tax laws – particularly those pertaining to the statutory time limitations – well-crafted information exchange references be forwarded to Board for onward taking the matter with the Saarc-LMA partners, the FBR added.