Tax crimes
as predicate offences
under
the Anti-Money Laundering Act. 2010

Bilal Hassan

Income tax, sales tax and excise duty are important inland taxes of the country due to their significant contribution in the overall federal tax receipts. However, actual collection of these taxes is less than the potential, and a significant tax gap estimated within these taxes is largely due to massive tax evasion. Tax evasion under the Income Tax Ordinance, 2001 (ITO 2001) is recently included as predicate offence under the Anti-Money Laundering Act, 2010 (AML Act 2010). Similarly, certain crimes in the Sales Tax Act, 1990 (Act 1990) and the Federal Excise Act, 2005 (Act 2005) are also included in the list of predicate offences under the AML Act 2010. Such tax crimes as predicate offences will be investigated and prosecuted under the provisions of the AML Act 2010, which imposes heavy monetary fines and imprisonment in addition to forfeiture of property involved in money laundering for the offence of crimes.

In order to further strengthen the existing AML Act 2010, the government has enacted the Anti-Money Laundering (Amendment) Act, 2020 (AMLA Act 2020), which received the assent of the President on 21 February 2020, and published in the official gazette of 27 February 2020. Under the AML Act 2020, monetary fine for the offence of money laundering has been increased from Rs 1 million to Rs 5 million and the reporting entities are required to maintain and keep record of suspicious transaction reports (STRs) and currency transaction reports (CTRs) for up to 10 years instead of existing period of up to 5 years. The AMLA Act 2020 has increased the period for provisional attachment of property involved in money laundering from 90 days to 180 days, which can be extended for up to 180 days by the court. Term of imprisonment for failure to comply with the suspicious transaction reporting requirements or providing false information has been enhanced from 3 years to 5 years, besides increasing a monetary fine from Rs 100,000 to Rs 500,000. The term of imprisonment for disclosure of information prohibited from disclosing has also been extended from 3 years to 5 years, besides increasing a monetary fine from Rs 500,000 to Rs 2 million.

Since tax evasion as predicate offence will attract heavy fines, imprisonment or both, understanding which actions under the ITO 2001, the Act 1990 and the Act 2005 constitute predicate offence will be of utmost importance for taxable persons, tax authorities and others concerned.

Giving knowingly and deliberately false statement in verification in any return or any other document submitted under the ITO 2001 will be predicate offence provided tax sought to be evaded is Rs 10 million or more.

Another predicate offence under the ITO 2001 is concealment of income or furnishing of inaccurate particulars of income that involves tax evasion up to or greater than Rs 10 million.

Knowingly or recklessly using false National Tax Number (NTN) in a return or in any other prescribed document where tax sought to be evaded is Rs 10 million or more also constitutes predicate offence.

A person who knowingly and wilfully aids, abets, assists, incites or induces any other person to commit an offence under the ITO 2001 which result in tax evasion of Rs 10 million or more, will also be held liable for an offence that is included in the list of predicate offences.

Certain offences under section 33 of the Act of 1990 are included in the list of predicate offences. These include submission of false or forged documents to tax authorities; destruction, alteration, mutilation or falsification of the records, including sales tax invoice; knowingly or fraudulently making false statement, false declaration and false representation; giving false information or issuing or using forged or false documents; and committing or causing to commit or attempting to commit the sales tax fraud or abetting or conniving in commissioning of sales tax fraud.

Inter alia, the offences under section 19(3) of the Act 2005 included in the list of predicate offences are illegally removing, storing, keeping or withdrawing of goods; conveying, removing, depositing or dealing with goods to defraud the government of the excise duty; evading or attempting to evade excise duty fraudulently; claiming, taking or availing adjustment of inadmissible excise duty; and manufacturing dutiable goods in contravention of the Act 2005 or rules made there under.

Why certain crimes mentioned in the ITO 2001, the Act 1990 and the Act 2005 are specifically included in the list of predicate offences to be investigated and prosecuted under the AML Act 2010 despite considerable punishments for such crimes already provided in the relevant tax laws? It entails simple reasoning of punishing crimes involving money laundering more severely and ruthlessly. Money laundering is a cruse for the economy and society especially when money is laundered outside the country. It directly reduces money of the economic system that implies less money will be available for investment projects. Ultimately job creation capacity of the economic system will get curtailed. Thus, money laundering hurts economic growth in more than one way and ultimately hampers the welfare of the society. Moreover, money laundering deteriorates democratic system.