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Dr. Ikramul Haq
Dr. Ikramul Haq, a leading international tax counsel, is a well-known author specialising in international tax, press, intellectual property, corporate and constitutional law. Dr. Ikram is Chief Partner of Lahore Law Associates (fax: +92 42 6365584, e-mail: irm@brain.net.pk; website: http://www.paktax.com.pk). He is a member of the visiting faculty of the Lahore Institute of Tax Education (LITE). He studied literature, journalism and law, for his Masters and Doctorate degrees. He has written many books on various aspects of Pakistani law and global narcotics trade, some of which are co-authored with his wife, Mrs. Huzaima Bukhari.
Tax Forum deserves admiration for publishing interview of Mr. Ahsan Zahir Rizvi, Advocate, who has been awarded Sitara-e-Imtiaz being the highest individual taxpayer in the country for the tax year 2003.
While replying to the question, “Are you highest paid corporate lawyer than stalwarts like Fakharuddin G. Ibrahim, Sharifuddin Pirzada, Abdul Hafiz Pirzada, Khalid Anwar, S.M. Zafar, Hamid Khan, Akram Shaikh and Dr. Pervez Hassan or a compliant taxpayer, Mr. Ahsan Rizvi replied: “Not at all. I am not the highest paid lawyer in the country. Ours is genuine partnership of professionals who are not related to each other and where for transparency proper record of receipts and expenses is maintained and the income declared and tax paid is based upon said partnership record. I may be called compliant taxpayer who has paid due tax without resorting even to permissible tax avoidance. Some of our receipts are from abroad which have been shown as revenue receipts inspite of an advice to reflect them as foreign remittances exempt from taxation.
The consultancy payments from abroad which have been shown as “revenue receipts” in the face of “advice to reflect them as foreign remittance from taxation” by Mr. Ahsan Rizvi shows truthfulness, integrity and diligence. The advice given to him was oblivious of the law that a resident person is taxable on the basis of his world income (Both Pakistani and foreign source). Many people are defying this principle by using (or abusing) unprecedented facility given under section 111(4) of the Income Tax Ordinance, 2001 [hereinafter: “the Ordinance”] that is a slap on the face of honest taxpayers.
This provision of law gives a free hand to tax dodgers/money launderers that they will not be asked any question if they remit their un-taxed/ill-gotten money from outside through normal banking channels surrendering the foreign currency to the State Bank and getting Pakistani rupees as encashment. This scheme, presumably announced as a measure to inject huge foreign funds into the Pakistani economy succeeded immensely as foreign reserves of Pakistan crossed the US$ 12 billion mark on 31st December 2003 but at the same time it has been used liberally and cleverly by tax dodgers to launder their money through State patronage. In the presence of this provision of law grantingunconditional immunity, an overwhelming majority of people will never be inclined to discharge their tax obligation honestly and diligently. However, persons like Mr. Ahsan Rizvi are willing to pay tax despite the fact that a genuine and bona fide exemption is available in respect of consultancy service rendered by them to foreign entities. It appears that Mr. Ahsan Rizvi has not been given proper legal assistance. In respect of income derived by him or his firm by way of fees for technical services rendered outside Pakistan to a foreign enterprise has been exempt under the following clauses of the new Ordinance and the repealed Ordinance:
Clause (131)(b), Part I of the Second Schedule to the Income Tax Ordinance, 2001:-
“(131) Any income-
(a) …………
(b) of any other taxpayer as is derived by him, in the income year relevant to assessment year beginning with the first day of July, 1982 and any assessment year thereafter, by way of fees for technical services[1] rendered outside Pakistan to a foreign enterprise under an agreement entered into in this behalf:-
Provided that-
(i) such income is received in Pakistan by or on behalf of the said company or other taxpayer, as the case may be, in accordance with the law for the time being in force for regulating payments and dealings in foreign exchange; and
(ii) where any income as aforesaid is not brought into Pakistan in the year in which it is earned and tax is paid thereon, an amount equal to the tax so paid shall be deducted from the tax payable for the year in which it is brought into Pakistan and, where no tax is payable for that year or the tax payable is less than the amount to be deducted, the whole or such part of the said amount as is not deducted shall be carried forward and deducted from the tax payable for the year next following and so on.”
Clause (139)(b), Part I of the Second Schedule to the Income Tax Ordinance, 1979:-
“(139) Any income-
(a) …………
“(b) of any other assessee as is derived by him, in the income year relevant to the assessment year beginning with the first day of July, 1982 and any assessment year thereafter, by way of fees for technical services rendered outside Pakistan to a foreign enterprise under an agreement entered into in this behalf:-
Provided that-
(i) such income is received in Pakistan by or on behalf of the said company or other assessee, as the case may be, in accordance with the law for the time being in force for regulating payments and dealings in foreign exchange; and
(ii) where any income as aforesaid is not brought into Pakistan in the year in which it is earned and tax is paid thereon, an amount equal to the tax so paid shall be deducted from the tax payable for the year in which it is brought into Pakistan and, where no tax is payable for that year or the tax payable is less than the amount to be deducted, the whole or such part of the said amount as is not deducted shall be carried forward and deducted from the tax payable for the year next following and so on.”
The consultancy fee/receipts earned abroad and brought into Pakistan by Mr. Ahsan Rizvi or his firm enjoy tax exemption but it is disturbing that neither the tax adviser of Mr. Ahsan Rizvi extended him proper consultancy, nor the Tax Department gave him due exemption/credit. In CIT v. Prasad Film Laboratories (P) Ltd. 1999 PTD 325, it is held that, “it is the duty of the assessing officer to correctly apply the law notwithstanding the fact that the assessee failed to make a claim.” The honourable judge of Lahore High Court, Mr. Justice Nasim Sikander aptly observed in CIT Companies, Lahore v. State Cement Corporation (Pvt.) Ltd 2002 PTD 1603 that “a collection of tax where it is not due is as detestable as its non-payment when it is due.” One hopes that the Department following this dictum will refund the amount due to Mr. Ahsan Rizvi to prove that honest and diligent taxpayers not only get civil rewards but also refunds when due.
[1] As per section 2(23) of the new Ordinance and Explanation to section 12(5) of the repealed Ordinance ‘fees for technical service’ mean any consideration whether periodical or lump sum for the rendering of any managerial, technical or consultancy services including the services of technical or other personnel, excluding services rendered in relation to a construction, assembly or like project or consideration which would be income chargeable under the head ‘Salary’.