Prime Minister's sons are obliged to file income tax returns in case they are earning through Pakistani source of income, otherwise they are not liable to file return being 'Non-resident' under the tax laws.

This was stated by tax lawyer, Waheed Shahzad Bhutt, while speaking at Aaj TV programme "Paisa Bolta Hai" with Anjum Ibrahim here on Sunday.

Responding to a question, he said in case of Husain and Hasan Nawaz, if they fall under the clear definition of `Resident' under tax laws, then they are legally obliged to file/declare their income/assets on total world income basis, otherwise being non-resident, not obliged to file returns.

The income of a non-resident person, under a head of income, shall be computed by taking into account only amounts that are Pakistan-source income. As per geographical source of income, an amount shall be foreign-source income to the extent to which it is not Pakistan-source income, he explained.

As per law, income of a resident person, under a head of income, shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income. While total income has been defined as income of a person for a tax year shall be the sum of the person's income under all heads of income for the year and person's income exempt from tax under any of the provisions of Income Tax Ordinance.

The provisions of Section 11(5) of the Income Tax Ordinance, 2001, clearly states that the income of a resident person, under a head of income, shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income, the tax lawyer said.

Similarly, the status of resident and non-resident persons has also been defined under the tax laws. It never depends upon the nationality or country of origin of passport, but it shall be determined on the basis of definition provided under the tax laws.

As per law, a person shall be a resident person for a tax year, if the person is a resident individual, resident company or resident association of persons for the year or a person shall be a non-resident person for a tax year, if the person is not a resident person for that year. While an individual shall be a resident individual for a tax year, if the individual is present in Pakistan for a period of 183 days or more in the tax year of 12 months, Mr Bhutt said.

About declaring assets and wealth, tax lawyer said that in case of wealth statement, Federal Board of Revenue (FBR) may require any individual to furnish wealth statement in the prescribed form and verified in the prescribed manner, giving particulars of the person's total assets and liabilities as on the date or dates specified in such notice.

Details required under the wealth statement also included total assets and liabilities of the person's spouse, minor children, and other dependants, any assets transferred by the person to any other person during the period or periods specified in such notice and the consideration for the transfer, the total expenditures incurred by the person, and the person's spouse, minor children, and other dependants during the period and the details of such expenditures and reconciliation of wealth/sources.

He said that the fiscal laws are there since inception, but real enforcement is practically not taking place. Tax authorities are not fully enforcing the fiscal laws to catch the masses liable to tax and having great potential to contribute in the national kitty. Due to poor law-enforcement and inefficiency of the FBR, effective enforcement of tax laws is not taking place.

Former finance minister Dr Salman Shah has said that the laws, such as, Protection of Economic Reforms Act, 1992, were specifically designed in a way to allow remitting unlimited amount out of the country. Such kinds of laws are contributing towards money laundering and capital flight from the country. There is a need to put disclosure requirements to check loopholes in the system.

In this regard, the central bank should know what kind of amount is coming and going out of the country and flows of remittances should be regulated through policy regulations. The weak areas should be checked to avoid illegal activities like tax evasion and money laundering. "We need to revise our operating procedures and improve disclosure requirements", he said.

Dr Shah said that the government should not take any step which may jeopardise inflow of genuine remittances send by overseas Pakistanis. At the same time, the issues like money laundering and tax evasion should be effectively tackled, then there is a possibility to improve the system. This system of sending sizable amount of remittances by overseas Pakistanis should not be disturbed. But, the disclosure requirements should be focused to regulate the system of foreign remittances.

If this system of foreign remittances is brought under the domain of FBR for monitoring, etc, which would disturb the whole scheme. The FBR should do its own intelligence work to control tax aversion and money laundering, Dr Salman Shah added.

-Business Recorder