RIAA Barker Gillette (USA) Supports the Expansion of Leading BVI Law Firm O’Neal Webster into New York by Successful L-1A Intracompany Transfer Visa Application

October 12, 2018 – NEW YORK – RIAA Barker Gillette (USA) is pleased to announce its success in assisting O’Neal Webster, a premier British Virgin Islands law firm, in the establishment of its New York City office—the first BVI law firm to stake a physical presence in the city. Headquartered in Tortola, the firm also staffs an office in London, UK. The U.S. office will focus exclusively on counseling U.S. and LatAm clients on BVI law.

RIAA Barker Gillette (USA) specializes in setting up new, or growing existing, United States offices for foreign, multinational companies. A core expertise of its immigration practice is obtaining legal work authorization for employees coming to work in the U.S. from their home country or other foreign offices.

RIAA Barker Gillette (USA) is part of the RIAA Barker Gillette Global Alliance, an alliance of international, industry focused law firms, with presence in twelve cities in the UK, USA, Middle East and Asia. RIAA Barker Gillette is the exclusive member firm for Pakistan of Lex Mundi, the world’s leading network of independent law firms with in-depth experience in 100+ countries worldwide. O’Neal Webster is Lex Mundi’s member firm in the British Virgin Islands.

Holding a decidedly unique position among British Virgin Islands law firms, being among the first to establish exclusively in the BVI in 1989, O’Neal Webster serves international clientele in BVI law related to corporate, finance, banking, business, investment funds, property, and trusts and estates. The firm is highly regarded for its expert handling of transactional, regulatory, and cross-border litigation.

Kerry Anderson, O’Neal Webster’s former, long-serving managing partner and head of its investment funds and regulatory practice, was selected for transfer from the BVI to start up and lead the newly established New York office. As a key executive, Anderson qualified for the L-1A intracompany transfer visa status, which allows foreign national executive and managerial employees located outside the U.S. to work in the U.S. for an affiliated entity. An L-1A visa is a non-immigrant status and does not automatically give the foreign employee permanent residency or a “green card.” However, in certain circumstances, it may be a gateway for a green card. More details on the L-1A visa and the subsequent green card application process may be found here.

RIAA Barker Gillette (USA) provided strategic guidance throughout Anderson’s L-1A process, from initial concept to the preparation and submission of the L-1A application with the U.S. Citizenship and Immigration Services; the preparation and submission of the visa application with the U.S. Embassy in Bardados; and, his visa interview and final arrival in the U.S.

“On behalf of O’Neal Webster, we are extremely impressed by the services provided by RIAA Barker Gillette (USA) and the role it played in helping us establish our New York office,” says Anderson. “Over the years, our firm has been fortunate to form close, working relationships with U.S. clients, many of which came through our Lex Mundi network. The savvy guidance of RIAA Barker Gillette (USA) was essential to obtaining the L-1A.”

“We strive to maintain close, beneficial relationships with all of our clients,” says Managing Partner Vanessa King, in an earlier press statement released by O’Neal Webster. “Our presence in New York allows us to create stronger bonds with our U.S. and LatAm clients and to better understand and respond to their legal and business needs. The initial response from our clients has been exceptionally positive, and we also look forward to welcoming new clients into our market.”

Anderson says he expects to begin hosting seminars and events from the New York office on a regular basis, highlighting the benefits of doing business with and in the BVI, which is the world’s leading jurisdiction for company incorporations.

In an earlier release, BVI Finance Executive Director Lorna G. Smith commented, “O’Neal Webster’s office in New York, the global hub of international finance, is a significant milestone for the firm and the entire BVI jurisdiction. For the first time, clients will receive advice on BVI funds and private client activities directly within the U.S., thereby facilitating the speed and effectiveness for entering global capital markets. We are very proud of our member firm’s accomplishment.”

The O’Neal Webster New York office is located at 380 Lexington Ave #17th Floor, Suite 1754, New York, NY.

All the Latest News from RIAA Barker Gillette USA

Highlights of RIAA Barker Gillette (USA) and “The Immigrant Success Story: How Family-Based Immigrants Thrive in America” by AILA

I have been selected to be the co-chair of the Immigration and Naturalization Committee [1] of the American Bar Association, Section of International Law. The Immigration and Naturalization Committee’s mission is to promote the rule of law by bringing together private and public-sector lawyers, government lawyers, students, academics and others across the globe with a common interest in immigration. Our objectives are to develop awareness of immigration issues around the world, and to encourage discussion of legal issues in particular jurisdictions. Among our projects, we produce quarterly newsletters, develop programs on key legal issues in the field for ABA meetings, propose and comment on immigration policy matters, and establish worldwide networks of legal professionals among ABA members. I am delighted to be selected to serve in this position and I look forward to advancing the profession through Committee activities.

I am also thrilled to announced that RIAA Barker Gillette (USA) has had several successful outcomes for its immigration clients. Some examples are below:

Federal court litigation to expedite approval of naturalization cases (citizenship applications)

I was able to obtain approval for clients who had had their citizenship applications pending for several years.  By filing writ of mandamus lawsuits against the USCIS and other federal agencies involved, I was able to get some citizenship cases approved in 90 days from filing complaints in federal court.

H-1B visa applications

Professional workers being hired by U.S. businesses. I handled several successful applications for work visas.  I have a fondness for this visa category, since this is the category which allowed me to work for my first law firm in Washington, D.C., after graduating from law school in the U.S.  This is a non-immigrant visa that allows certain foreign workers to perform full time work for U.S. employers for up to 6 years.  The professions and businesses I have done H-1B visas for include accounting, medicine, dentistry, information technology, engineering, biotech, global health non-profits, and e-commerce, among others.  Applications for H-1B visas for next year must be filed in the first week of April 2019.  In 2018, 190,098 H-1B petitions were received for 85,000 positions.  As a result, some were not selected in the random lottery process.

L-1A intracompany transfers

This visa category allows a start-up U.S. company or an existing U.S. company to employ a foreign national as an executive or manager.  To be eligible, the employee must have at least one year of qualifying work experience for an affiliated entity overseas.  This is a popular category of visa for those companies that have offshore operations and wish to bring key talent to the U.S. to help grow the U.S. business.  It is also a useful visa category for overseas based companies to launch operations in the U.S.  I have experience handling these cases for law firms, fin tech companies, asset management firms, information technology companies, and large wine producers.  This visa is a good vehicle for those eventually looking to get a green card.  L-1A employees may generally apply for green cards after one year of employment in the U.S., sometimes sooner.  The advantage of this visa is that it is not subject to U.S. labor market testing and minimum wage requirements.  It is also not restricted to certain countries, or any minimum investment amount.  The L-1B visa is also an option for specialized knowledge workers.

E-2 treaty investor visa

This is a very attractive category of visa available to citizens of certain treaty countries.  It allows foreign nationals to invest in the U.S. in any business of their choice and obtain a visa to live and work in the U.S. to develop and direct their business.  They may also petition for essential employees (e.g. a specialty chef at a restaurant).  The investment must be substantial, though no minimum is specified.  The source of funds must be documented in great detail.  The business can be a start-up or an existing business.  Syed Law Firm has successfully obtained E-2 investor and essential employee visas for restaurants, IT companies, medical device suppliers and other businesses.

Family Sponsorship

Our firm has worked on several cases involving parents and spouses/fiancés of U.S. citizens.  There are different processes for relatives who are already in the U.S. on some other visa category, and those who are overseas.  Persons married to U.S. citizens can get green cards, even if they are living out of status in the U.S.  This is a great advantage of this category.  Certain foreign citizens who live with their U.S. citizen spouses in countries where USCIS offices are located, [2] may file for their U.S. green cards at the U.S. Embassy directly, without the need to process with USCIS first in the U.S.  RIAA Barker Gillette (USA) has recently had success in such cases in London, U.K. and Rome, Italy.  This option is only available in a limited number of countries, and is quicker than similar processing inside the U.S.

Employment based green cards

An employer that can demonstrate to the U.S. Department of Labor that it has been unable to find a qualified U.S. worker may offer the job to a qualified foreign national.  Next, the employer has to petition USCIS for a permanent resident visa for such a person. This is also known as the PERM green card.  The whole process can take longer than a year, sometimes much longer.  Certain occupations known as schedule A positions are exempted from the labor market test.  These are occupations where the U.S. Department of Labor has determined that a shortage of qualified workers already exists.   Examples are nurses and physical therapists.  These cases can be approved quicker.  Among the professionals RIAA Barker Gillette (USA) has assisted in getting green cards are accountants, dentists, physicians, IT workers, physical therapists, lawyers and others.

TN status or TN visa

This is a special non-immigrant status in the United States, Canada, and Mexico that offers expedited work authorization to a citizen of these countries.  It bears a similarity, in some ways, to the U.S. H-1B visa, but also has many unique features.  Within the TN set of occupations, a United States, Canadian, or Mexican citizen can work in the one of the other two countries for up to three years but does not have the right to apply for permanent residence.  The permit may be renewed indefinitely.

As many of you are no doubt aware, it has been a busy time in the world of immigration.   In order to provide information to my customers, I have regularly contributed articles to my blog.  Some recent articles are provided here for your reference.  If you or someone you know has need for U.S. immigration law services, please contact me.

EB1 Multinational Manager/Executive Green Card via an L1A Intracompany Transfer Visa

What is the L-1A visa? The L-1A intracompany transfer non-immigrant visa allows foreign national executive/managerial employees located outside the U.S. to work in the U.S. for an affiliated entity.  An L-1A visa is a non-immigrant status and does not automatically……Read more…

Review of The American Immigration Council’s Special Report: “The Immigrant Success Story: How Family-Based Immigrants Thrive in America”

A brief summary of The American Immigration Council’s special report, “The Immigrant Success Story: How Family-Based Immigrants Thrive in America,” by Harriet Duleep, Ph.D, Mark Regets, Ph.D. and Guillermo Cantor, Ph.D. This report explores the family-based immigration system’s influence on upward…Read more…

Immigration Changes and You: The Effects of the Trump Administration’s New Policies

On March 22, 2018, the American Immigration Lawyers Association published “Deconstructing the Invisible Wall: How Policy Changes by the Trump Administration Are Slowing and Restricting Legal Immigration.” The changes are reflected in several broad categories: travel ban and extreme vetting, admission of temporary skilled workers and entrepreneurs; programs for compelling populations; naturalization of foreign-born soldiers in the U.S. military; the growing backlog of immigration benefits applications, increasing processing times, and increasing fees; and decreasing focus on stakeholder input and customer service…Read more…

RIAA Barker Gillette (USA) has summarized the policy report and has outlined the ways that the policy changes may affect you as you go through the immigration process.

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

EB1 Green Card via an L1A

EB1 Multinational Manager/Executive Green Card via an L1A Intracompany Transfer Visa

What is an L-1A visa?

The L-1A intracompany transfer non-immigrant visa allows foreign national executive/managerial employees located outside the U.S. to work in the U.S. for an affiliated entity.  An L-1A visa is a non-immigrant status and does not automatically give the foreign employee permanent residency or a “green card”.  But it may in certain circumstances be a very useful gateway for a green card.

What is the EB-1C Multinational Manager/Executive?

The Employment-Based Immigration Petition, or EB-1C green card, is an employment-based petition for permanent residence.  The EB-1C was designed for the most proficient and skilled foreign managers and executives.  Some of the EB-1C criteria are similar to those of an L-1A visa.  Persons who come to the U.S. as L1A workers can usually apply for an EB-1C green card after being in the U.S. for one year on the L1A status, provided they are not also an owner of the business.  In some cases qualified L1A executives/managers can apply for EB-1C green cards prior to the one year anniversary of their L1A status, if the U.S. entity has been operational for over a year.

L-1A Visas – The Intracompany Transfer

Basic Requirements L-1A

For the Employee (Alien) to be eligible for an L-1A non-immigrant visa, the following conditions must be met:

  • The employee must have worked abroad for the overseas company for a continuous period of one year in the preceding three years.-The company for which the employee has worked for a year abroad must be related to the U.S. company in a specific manner.
  • The sponsoring company must be doing business both in the United States and another country throughout the period of the transfer.  Or the employee must be opening a startup in the U.S.
  • The employee to be transferred must have been employed abroad in an “executive” or “managerial” position.
  • The employer must be coming to the U.S. company to fill one of these capacities (executive or managerial).
  • The employee must be qualified for the position by virtue of his or her prior education and experience.
  • The L-1A alien must intend to depart the United States upon completion of his or her authorized stay (including extensions) but may also pursue permanent residence at the same time.

One-year Continuous Employment Requirement

The one-year continuous employment requirement gives rise to several questions.

  • Does the petitioner have to meet the one-year requirement within three years immediately preceding to filing the L-1A petition or entry into the United States or initial application for entry into the United States?
  • The statutes and regulations are unclear and contradicting on this issue. Reading the Immigration and Nationality Act (“INA”) on its face, the statute refers to the 3 years preceding the time of application for admission into the United States.  Following this interpretation, the Code of Federal Regulations (“CFR”) defines intracompany transferee as “an alien who, within three years preceding the time of his or her application for admission into the United States, has been employed abroad continuously for one year” by a qualifying company.[1] However, later in the same section, the CFR provides contradicting interpretation, stating that L-1A petition need to be supported by evidence that “the alien has at least one continuous year of full-time employment abroad with a qualifying organization within the three years preceding the filing of the petition”.[2]
  • In Matter of Kloeti, the court looked at the beneficiary employee’s initial application for entry into the United States.[3] The beneficiary first applied for admission to the United States as a nonimmigrant visitor for business (B-1); he then applied to change status to L-1. The court said that his application for change of status is not an application for admission to the United States under INA section 101(a)(15)(L).  As the beneficiary had not employed for one year by the qualifying overseas company before his B-1 visitor application, he did not meet the one-year employment requirement for L-1 petition.
  • The INS (USCIS) discussed that if a beneficiary works in the U.S. on H-1B visa before filing for L-1 and the H-1B is related to the qualifying foreign employer, they count the qualifying employment time prior to the H-1B application when considering the one-year employment requirement.[4] The INS provides a scenario where a beneficiary has worked in the U.S. for 3 years on H-1B nonimmigrant visa before filing for L-1. The INS officer says that for the L-1 petition, they consider whether the beneficiary has acquired one-year of qualifying employment within three years immediately preceding his H-1B application. The INS requires, however, that “the time spent in the U.S. as an H-1B be for a firm related in a qualifying capacity to the alien’s previous foreign employer.”[5]
  • If the employee gets work-related training in the U.S. for a few months, does the training break his/her continuous employment at the overseas company?
  • In Matter of Continental Grain, the foreign national stayed in the U.S. for 28 months as a nonimmigrant trainee in pursuit of further training related to his qualifying employment.[6] Within the twelve months immediately preceding his petition, the beneficiary had spent over four months in the United States. He had worked at his overseas company for over 5 months immediately preceding the training and immediately after the training, he worked there for more than 7 months. Under such circumstances, the foreign national met the one-year continuous employment requirement. (This case was decided before the current L-1 regulations came in force. “Periods spent in the United States in lawful status for a branch of the same employer or a parent, affiliate, or subsidiary thereof and brief trips to the United States for business or pleasure shall not be interruptive of the one year of continuous employment abroad but such periods shall not be counted towards fulfillment of that requirement.”[7]

EB-1C GREEN CARD – Multinational Executives and Managers

EB-1C stands for the first preference employment-based immigrant classification for multinational executives or manages. This classification allows a U.S. employer to permanently transfer a qualified foreign employee to the United States to work in an executive or managerial capacity.

In order to establish eligibility for EB-1C, the employee must have worked for a qualifying entity abroad for one year in the three years preceding the filing of the petition or preceding his or her admission to work for the petitioner as a non-immigrant.  If the beneficiary is outside the United States at the time of filing, the petitioner must demonstrate that the beneficiary’s one year of qualifying foreign employment occurred within the three years immediately preceding the filing of the petition.[8] If the beneficiary is already working in the United States for the petitioner, or its affiliate or subsidiary, at the time of filing, the petitioner must demonstrate that the beneficiary’s year of foreign employment occurred in the three years preceding his or her entry as a non-immigrant.[9]

In its recent Policy Memorandum issued on March 19, 2018, USCIS states that for the one-in-three employment requirement, it only looks at the three years immediately preceding the EB-1C petition. A period of employment with a different U.S. employer would not automatically disqualify a beneficiary. However, a break in qualifying employment longer than two years will interrupt a beneficiary’s continuity of employment with the petitioner’s multinational organization. Such breaks may include, but are not limited to, intervening employment with a non-qualifying U.S. employer or periods of stay in a non-immigrant status without work authorization.

Please consult RIAA Barker Gillette (USA) on issues related to L-1A or EB-1C petitions.

Note: This is not legal advice; it is intended to provide information of
general interest about current legal issues.

[1] 8 C.F.R. § 214.2(l)(1)(ii)(A).

[2] 8 C.F.R. § 214.2(l)(3)(iii).

[3] See Matter of Kloeti, 18 I&N Dec. 295 (Reg’l Comm’r 1982).

[4] Letter, Bednarz, Chief, NIV Branch Adjudications, CO 214 L-C (Mar. 25, 1994), reprinted in 71 No. 27 Interpreter Releases 936, 938 (July 18, 1994).

[5] Id.

[6] See Matter of Continental Grain, 14 I&N Dec. 140 (D.D. 1972)

[7] 8 C.F.R. § 214.2(l)(1)(ii)(A).

[8] 8 C.F.R. § 204.5(j)(3)(i)(A).

[9] See 8 C.F.R. § 204.5(j)(3)(i)(B).

Review of “The Immigrant Success Story”

Review of The American Immigration Council’s Special Report, “The Immigrant Success Story: How Family-Based Immigrants Thrive in America,” by Harriet Duleep, Ph.D, Mark Regets, Ph.D. and Guillermo Cantor, Ph.D.[1]

This report explores the family-based immigration system’s influence on upward economic mobility for immigrants as their earnings grow over time.  It argues that family-based immigration is important to the “adaptation, integration and well-being of immigrants” and that although initial earnings may be low for new family-based immigrants, their high rate of investment on human capital leads to increased earnings the longer they reside in the U.S. This report also highlights the influence of sibling family-reunification on both increased earnings and entrepreneurship.

In addition to the report’s findings on family-based immigration, it also discusses more broadly the history of immigration changes and the potential threats to this process of admissions.  As the narrative shifts in favor of a merit-based system, it inadvertently overlooks the economic growth which family-based immigration generates over a protracted period of time.

Report Findings

Before reviewing the report’s findings, it is important to note that the U.S immigration system is largely based on family reunification.  In 2016, 68 percent of individuals receiving Lawful Permanent Resident status did so through family-based immigration.

By analyzing three cohorts of immigrants over a 10-year span (between decennial censuses), Dulep et al. identified a trend in increased earnings.  The immigrant cohort that entered the U.S. between 1965 to 1970 experienced an increase in overall earnings by 1980. New immigrants of this cohort began with making only 65 percent of what a comparable native-born worker earned in 1970.  However, after 10 years (in 1980), the report showed them making 85 percent of comparable earnings.

Immigrant’s initials earnings compared to native-born workers dropped with the cohorts of immigrants entering the U.S between 1975-1980 and 1985-1990.  In 1980 the initial earnings dropped to 50 percent and in 1990 it dropped again to 41 percent. However, their overall comparable earnings after a 10-year span remained at 84 and 85 percent.

This shows that while the initial earnings for immigrants may be lower than they were historically this is a narrow portrayal of immigrants’ economic growth. Dulep et al. argue that looking at family-based immigration over a longer period of time is necessary to accurately assess the overall economic impact.

Furthermore, the findings show that there is a 10 percent increase in earnings growth when siblings enter the U.S. through family-based immigration.  Family-based immigration, particularly for siblings, provides an opportunity for family businesses.  There is also a higher rate of investment in human capital such as education and training among immigrants who entered the U.S. through family-based immigration.  Whereas employment-based immigrants come to the U.S. engaged in a specific employment opportunity and are less likely to invest in human capital.

A Changing Narrative Threatens Family-Based Immigration

The 1965 Immigration Act removed the restrictive national origin quotas and implemented a family-based immigration system.  Although the current immigration system remains predominantly family-based, immigration policy experts, economists, and politicians have shifted the narrative to merit-based or skills-based admissions.  Yet, this debate ignores the importance of family-based immigration in relation to skills-based.  Highly-skilled immigrants are more likely to move if family members are also allowed to.  It should also be noted that highly-skilled workers often sponsor highly-skilled or educated family members.

The authors state, “Policies hostile to family-based immigrants risk not only losing out on these sources of flexibility and innovation, but also risk damaging the country’s ability to recruit employment-based migrants.”   This prioritization of a merit-based system only looks to fill the immediate labor market and ignores the impact of family-based immigration on its unique influence on the U.S. economy.

 

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

[1]https://www.americanimmigrationcouncil.org/research/immigrant-success-story

Immigration Changes and You

The Effects of the Trump Administration’s New Policies

On March 22, 2018, the American Immigration Lawyers Association published “Deconstructing the Invisible Wall: How Policy Changes by the Trump Administration Are Slowing and Restricting Legal Immigration.”

The changes are reflected in several broad categories: travel ban and extreme vetting, admission of temporary skilled workers and entrepreneurs; programs for compelling populations; naturalization of foreign-born soldiers in the U.S. military; the growing backlog of immigration benefits applications, increasing processing times, and increasing fees; and decreasing focus on stakeholder input and customer service.

RIAA Barker Gillette (USA) has summarized the policy report and has outlined the ways that the policy changes may affect you as you go through the immigration process.

Travel Ban and Extreme Vetting

One of the first actions undertaken by the new administration was to sign Executive Order 13769, “Protecting the Nation from Foreign Terrorist Entry into the United States,” – more commonly known as the “Travel Ban.” The order had to be modified from its original form, but it has effectively added more procedures to the visa process – even though the United States already had one of the most comprehensive and thorough visa screening processes in the world.

Under the Trump Administration, there are even more screening procedures in place. The procedures – described below – were implemented without explanation why they are necessary or pointing to inadequacies in the older procedures.

The procedures are explained below:

  • Impeding the admission of people from Iran, Libya, Somalia, Sudan, Syria, and Yemen
  • Pausing the Refugee Resettlement Program for 120 Days.
  • Reducing the Number of Refugee Resettlement for the 2017 fiscal year by half.
  • The New Form DS-5535.
    • DS-5535 was created to allow for additional screening for people who may have ties to terrorism, however, it can be used for any person requesting a visa regardless of where they are from.
    • Requirements include: Applicant’s travel, address, and employment history from the last fifteen years and Applicant’s travel, address, and employment history from the last fifteen years.
    • This has caused several issues ranging on the chance of denial based on a mistaken omission and the issue of the invasion of privacy (both of immigrants and U.S. citizens) as the Customs and Border Protection has increased its search of social media information as people enter the United States.[1]
  • Suspension of the Interview Waiver Program
    • Under the Obama administration, interviews for visa renewals were not necessary for visa holders who had already been vetted and who presented low security concerns (i.e. student and travel visas for people from places like China and Argentina).[2]
    • As of March 6, 2017, the interview waiver program is now only applied to a select group of people: diplomats, representatives of foreign countries, representatives of the United Nations, employees of certain international organizations (such as NATO), individuals who are either under the age of 14 or over the age of 79, and individuals who are seeking to renew their visas within one year of a previous visa expiring.[3]
  • Administrative Processing
    • This term is used by the Department of State whenever an applicant has gone through the appropriate channels to get a visa, but now requires additional review and screening. Applicants are not made aware of why additional security checks are necessary and they are not given any predictive timeline of how long the screening might take.
    • While the average delay for administrative processing is 60 Days, applicants from the Middle East frequently had delays of six months or more (sometimes up to a year).[4]
  • Domestic Interview
    • As of October 2017, the following people must also go through an in-person interview in the United States U.S. Citizenship and Immigration Services Field Office: employed-based green card applicants and the children and spouses of refugees and asylees.
    • Those affected by this rule include individuals who have lawfully lived in the United States for a number of years.
  • National Vetting Center
    • In February of 2018, President Trump signed an official memorandum to create a National Vetting Center with the established purpose of communication and information sharing between the various agencies which play a role in immigration procedures.

In January of 2018, the Department of Homeland Security published a report providing justification for the new procedures, however, it has been stated as being “misleading” and “used to perpetuate Trump’s anti-immigrant views.” The report has been characterized as being a tool to extend the myths that immigrants (especially Muslim immigrants) present a danger to the United States.[5]

Admission of Temporary Skilled Workers and Entrepreneurs

Since the first month of the administration, there have been several policies enacted which make it more difficult for Americans to hire foreign workers. Many of the policies were enacted by Executive Order 13788, “Buy American and Hire American” (BAHA).[6] There have been several changes resulting:

  • Federal agencies have been directed to make reforms so that H-1B visas are awarded to the “most-skilled and highest-paid beneficiaries.”[7]
  • The Department of Labor and Department of Justice have both increased the scrutinizing and enforcement of H-1B employers.
  • Communicated the goal to end the Obama-era “International Entrepreneur Rule”, which was aimed at created a route for individuals who hold promise in creating innovations or pursuing important research.
  • Rescinded the memorandum that a computer-programmer position made an individual eligible for an H-1B.
  • Restricted the ability of Canadian and Mexican nationals seeking to practice as economists in the United States, pursuant to their status as “Treaty Nationals” under the North American Free Trade Agreement.
  • Increased the amount of evidence necessary for H-1B petitions involving third-party sites.
  • Communicated intent to terminate the H-4 work authorization; therefore, the spouses of individuals who are in the U.S. through an H-1B visa will no longer be able to work themselves.

Programs for Compelling Populations

  • Termination of the Deferred Action for Childhood Arrivals (DACA) Program.
  • The fate of DACA remains unclear at the present. In September 2017, the President announced that the program would no longer accept applications and no solution has been effectively put into place for prior enrollees.
  • Removing Temporary Protected Status (TPS) Designation for Specific Nationals
    • TPS status had been previously provided for individuals who are fleeing countries due to natural disaster, prolonged armed conflict or other unsafe conditions.
    • In January 2017, the administration removed TPS status for people from El Salvador, Sudan, Nicaragua, and Haiti. The administration may soon terminate TPS for people from Honduras. The termination of their status recognition means that people who previously were designated as TPS are facing deportation.
    • Currently, TPS status is still available for people from Nepal, Somalia, South Sudan, Syria, and Yemen.
  • Ending the Central American Minors (CAM) Program
    • CAM was created as an answer to the influx of unaccompanied minors making the dangerous journey from Guatemala, El Salvador, and Honduras alone.
    • In August 2017, the Department of Homeland Security ended the program and stopped any approved applicants from entering the country. As of November 2017, the Department of State no longer accepts refugee applications through CAM.[8][9]
  • Cutting Refugee Acceptances
    • For the fiscal year 2018, 45,000 refugees will be accepted into the United States (the previous administration admitted 110,000 refugees).[10]
    • Nationals from 11 “high-risk” countries will undergo additional screening and scrutiny, including a 90-day review. The names of the countries have not been made public.[11][12]

Naturalization of Foreign-Born Soldiers in the U.S. Military

  • In October 2017, the Department of Defense announced two changes to the policy creating a path to citizenship through serving in the armed forces.[13]
  • One change is that all lawful permanent residents must go through a background check and receive Military Security Suitability Determination (MSSD) and National Security Determination (NSD) – which can take up to a year.[14]
  • Second, foreign-born recruits can only receive the certification necessary for naturalization (N-426) if they (1) go through all screening requirements and receive a favorable MSSD; (2) finish the compulsory military training; and (3) complete at least 180 consecutive days of active duty service (or one year of service in the Selected Reserve of the Ready Reserve.)[15]
  • Previously certified individuals have been recalled to undergo background checks.[16]
  • Currently, several lawsuits have put a hold on these policies – however, it is unclear whether they will be ultimately implemented and applied.[17]

The Growing Backlog of Immigration Benefits Applications, Increasing Processing Times, and Increasing Fees

  • The time to process an application for many immigration benefits (including employment, travel, renewal of cards, among others) has increased. Some field offices have an average five months processing time while others have an average of one year. The overall average is 8.5 months.[18]
  • There are many reasons for the backlog including the changes in policy which require screening for individuals who could previously be waived, additional interviews, and additional checks.[19]
  • As of 2017, individuals who have a travel application pending must either cancel interim travel or file a new application – regardless of whether they have a legitimate visa. Those who are most affected by this policy change are H-1B and L-1 employees who travel for work.
  • USCIS now requires “bridge visas” for individuals transitioning from one nonimmigrant status to F-1 student status. People must file an application during that time – in case their nonimmigrant status expires during the F-1 processing time.
  • Processing fees are likely to increase, as per the published regulatory agenda. Changes are likely to be announced in October 2018.

Decreasing Focus on Stakeholder Input and Customer Service

  • The relationship between immigration professionals and agencies has shifted. It has become increasingly difficult to set-up meetings regarding policy shifts and to discuss the legal and real-world results of the administration’s changes.
  • It is becoming more difficult to get information about specific cases.

Potential Changes

  • There are several potential changes to immigration policies that may take place in the next year. As per the regulatory agenda, there may be changes to INA §212(e) Waivers, H-1B registration rules and a revised definition of both the specialty occupation and employer relationship, and changes for students in the U.S. on nonimmigrant visas.[20]

 

Note: This is not legal advice; it is intended to provide information of general interest about current legal issues.

      

[1] Carrie DeCell, ‘Dehumanized ’ at the Border, Travelers Push Back, Just Security (Feb. 2, 2018),  https://www.justsecurity.org/51759/dehumanized- border-travelers-push/.

[2] Former 9 FAM 403.5-4(A)(4)

[3]9 FAM 403.5-4.

[4] Administrative Processing Information, U.S. Dept. of State, available at https://travel.state.gov/content/travel/en/us-visas/visa-information-resources/ administrative-processing-information.html.

[5] U.S. Congressman Bennie G. Thompson, Press Release: Thompson & Nadler: New DHS/DOJ Terrorism Report is Misleading and Perpetuates Trump’s Anti-Immigrant Views (Jan. 16, 2018), https://benniethompson. house.gov/media/press-releases/thompson-nadler-new-dhsdoj-terrorism-report- misleading-perpetuates-trump-s-anti.

[6] Exec. Order No. 13788, 82 Red. Reg. 18837 (Apr. 18, 2017).

[7] Id.

[8] Central American Minors Parole Program, 82 Fed. Reg. 38926 (Aug. 16, 2017).

[9] See Status of the Central American Minors Program, U.S. Dept. of State (Nov. 8, 2017), https://www.state.gov/r/pa/prs/ps/2017/11/275415.htm.

[10] U.S. Dept. of State, Report to the Congress, Proposed Refugee Admissions for Fiscal Year 2018 (Sept. 29, 2017), https://www.state.gov/ documents/organization/274857.pdf

[11] Improved Security Procedures for Refugees Entering the United States, U.S. Dept. of Homeland Security (Oct. 24, 2017), https://www.dhs.gov/ news/2017/10/24/improved-security-procedures-refugees-entering-united- states.

[12] DHS Announces Additional, Enhanced Security Procedures for Refugees Seeking Resettlement in the United States, U.S. Dept. of Homeland Security ( Jan. 29, 2018), https://www.dhs.gov/news/2018/01/29/ dhs-announces-additional-enhanced-security-procedures-refugees-seeking- resettlement

[13] m Garamone, DOD Announces Policies Affecting Foreign Nationals Entering Military, U.S Dept. of Defense (Oct. 13, 2017), https://www. defense.gov/News/Article/Article/1342430/dod-announces-policies-a ecting- foreign-nationals-entering-military/.

[14] Office of the Undersecretary of Defense, Dept. of Defense, Memorandum, Military Service Suitability Determinations for Foreign Nationals Who Are Lawful Permanent Residents (Oct. 13, 2017), available at https://www.defense.gov/Portals/1/Documents/pubs/Service-Suitability- Determinations-For-Foreign-Nationals.pdf.

[15] Office of the Undersecretary of Defense, Dept. of Defense, Memorandum, Certification of Honorable Service for Members of
the Selected Reserve of the Ready Reserve and Members of the Active Components of the Military or Naval Forces for Purposes of Naturalization (Oct. 13, 2017), available at https://www.defense.gov/Portals/1/Documents/ pubs/Naturalization-Honorable-Service-Certification.pdf.

[16] Id.

[17] See Kirwa v. Department of Defense, Civil Action No. 17-1793 (D.D.C.); Nio v. Department of Homeland Security, Civil Action No. 17-0998 (D.D.C.).

[18] See generally USCIS Processing Time Information, U.S. Citizenship & Immigration Services, https://egov.uscis.gov/cris/processTimesDisplayInit.do. Historical processing time data is available at: http://www.aila.org/infonet/ processing-time-reports.

[19] Citizenship and Immigration Services Ombudsman, Annual Report 2017, (June 29, 2017), available at https://www.dhs.gov/sites/default/ les/ publications/DHS%20Annual%20Report%202017_0.pdf

[20] See Office of Mgmt. & Budget, Exec. Office of the President, RIN 1653- AA76, Practical Training Reform, available at https://www.reginfo.gov/ public/do/eAgendaViewRule?pubId=201710&RIN=1653-AA76.

Tax Challenges Faced by Pakistani Governments

I. Introduction

Although the tax to GDP ratio has risen over the last three years from 8.45 percent to 10.5 percent, Pakistan significantly lags below other countries with comparable levels of income. The country’s tax capacity—the maximum level of revenue that a country can collect— is estimated to be 22.3 percent of GDP, which implies a revenue gap of around of 11.8 percent of GDP.

II. Tax Compliance and Potential

Around 7 million out of an estimated total population of around 202 million Pakistanis are estimated to be eligible to pay income tax, but only around one-tenth do. Approximately, 2 percent of the total population or 60 percent of the potential tax base is registered for income tax. However, in tax year 2015, only 0.45 percent of the total population filed a tax return, corresponding to 15pc of the potential tax base. Only two thirds of those registered—constituting just above 0.3 percent of the population—actually paid income tax as part of the tax-filing and assessment regime. This is one of the lowest ratios in the world. Less than a tenth of taxpayers paid more than 500,000 rupees in personal income tax for the year (US$4,800 plus). The bulk of the income tax collection is from the corporate sector, which contributed over two thirds of total income tax receipts in 2015-16, while personal income tax receipts made up the remainder. Out of over 65,000 companies registered with the Securities & Exchange Commission of Pakistan, around 25,000 filed a tax return (approximately 38 percent of the total). Of these, 40 percent did not declare a profit. One percent of all companies accounted for 79 percent of corporate income tax collection. A similar pattern is borne out in sales tax, which is a value added tax charged on the sale of goods: out of 1.4 million retailers and 3.5 million commercial and industrial electricity users, only 178,190 are registered for sales tax.

A. Challenge Facing the Government’s Policy-makers

While on the one hand the above statistics paint a picture far from satisfactory with regards to compliance by taxpayers and resource mobilization by the government, on the other they demonstrate the vast potential for increasing tax revenues. The gap between present tax collection and the capacity of the economy to pay taxes is even greater when the fact that major sectors of the economy are presently exempt or nominally taxed by Federal and Provincial Governments is taken into account.

B. Collection in Tax Year 2016

In spite of the current situation it is laudable that the Federal Government met its tax revenue target (of 3.1 trillion rupees) in tax year 2016—a first in nearly a decade. A breakdown on the expenditure side reveals that, even after achieving the target, after accounting for transfers to the Provinces of their share of tax, 95.5 percent of the net receipts will be taken up by debt servicing and defence spending. The former accounts for 1.8 trillion rupees and the latter to 860 billion rupees. The remainder of the Federal Government’s development expenditures (health, education, infrastructure, subsidies, etc.) and non-development expenditures (cost of running the civil government, pensions etc.) shall have to be financed from the remaining 4.5 percent of net federal revenues and further borrowing to the tune of 46 percent of net federal revenue (or 58 percent if the Provincial surpluses of 339 billion rupees are not taken into account).

C. Underlying Causes

The ever rising demands on the exchequer make it all the more crucial for the government to increase tax revenues by tapping into the potential revenue gap in a manner that does not penalize economic growth or exacerbate income inequality. Due to the state of public finances and the economy in general, the need to increase tax revenue has acquired dimensions that transcend the conventional objectives—namely, reducing budget deficit and increasing fiscal space for social and infrastructure development—and has implications on wider issues such as the exchange rate of the Pakistani rupee, documentation of the informal economy and governments’ freedom from external players in formulating policy.

The general consensus among commentators as to the central flaws in the system of taxation in Pakistan has been that it relies too heavily on indirect taxation, leaves large sectors of the economy untaxed or taxed far below their contribution to the GDP, overly burdens compliant economic sectors while not enforcing tax law in others. It is also widely regarded as complex (relative to comparator developing economies) and cumbersome.

In tax year 2016, indirect taxes in aggregate constituted 62 percent of the Federal Government’s tax revenues. Such heavy reliance on indirect taxes has given rise to a regressive tax system. Even in tax year 2016, in which the government met its tax revenue target, the increase in collection was caused by the higher than anticipated increase in indirect tax collection (sales tax and customs duty). The target for income tax was missed by 231.6 billion rupees. The taxation at source regime (withholding and advance tax) in Pakistan’s income tax system, which contributes around 68 percent of total direct tax collection and is perhaps one of the widest ranging in the world, operates in many respects as an indirect tax. It is applicable also to those transactions in which the recipient (in cases of withholding) or payer (in case of advance tax) has a taxable income below the minimum threshold for income tax and in many cases is a final or minimum tax on the income to which it applies. In that respect, although the tax is levied as a tax on income, in practical terms it translates into a tax on consumption or transactions, irrespective of income, and is passed on to the end consumer. An illustration of the foregoing is that while the number of persons paying income tax in tax year 2015 was 1,074,418, tens of millions more paid advance tax on purchase of mobile phone credit: as of March 2015, Pakistan had a total of 134 million mobile phone subscribers. Some commentators have therefore described the tax as an indirect tax camouflaged as a direct tax. If the income tax collected as source is classified as an indirect tax, the proportion of indirect taxes in Pakistan’s tax revenue will stand at nearly 86 percent—a testament of the extent of regressivity of the tax system.

In recent years, the government has sought to increase tax revenue largely by further taxing already compliant sectors of the economy. Such measures exacerbate inequality, decrease tax morale and create further distortions in economic activity. Vast sectors of the economy, such as agriculture, continue to remain taxed far below their share in the GDP whereas others such as petroleum products have been taxed heavily. The challenge in bringing to tax such under taxed sectors is compounded by the fact that under Pakistan’s Constitution, taxation of agriculture, services and immovable property, which represent a significant share of the GDP, is the exclusive domain of the Provincial Governments. The agriculture sector, for example, generates less than 0.1 percent of total revenues although it accounts for around 20 percent of the GDP. Although in recent years some Provincial Governments have increased tax collection largely by introducing and implementing a value added tax on supply of services, provincial tax revenues represent around 8 percent of the total revenue collection in Pakistan. The provincial governments finance the remainder of their expenditures through constitutionally mandated transfers from the Federal Government.

The tax system of Pakistan is also complex and places substantial demands on management time, making it costly to comply. In 2015, with respect to ease of paying taxes, the World Bank Group’s Doing Business Survey ranked Pakistan at 171 out of 189 countries surveyed. The ranking was maintained in 2016. The average number of tax payments required to be made each year in Pakistan is 50 percent higher than the average for South Asia. Furthermore, the World Bank survey determines that a total of 594 hours are required to be spent each year on paying taxes; the regional average is around half that number. An already complex tax system is made even more complicated by the fragmentation of taxing powers between the Federal Government and the Provincial Governments; the Federal Government, each Provincial Government as well as local authorities have a number of revenue collection agencies. Any meaningful reform aimed at simplifying and streamlining the tax system will require consensus between all tiers of government to entrust their revenue collection to a single (or fewer) revenue collection agencies.

In recent years successive governments have put in place various measures to increase tax revenues. However, wide-ranging reforms aimed to document the informal economy and tax sectors of the economy that do not bear an equitable burden of taxation have either not been pursued or substantially diluted. For instance, in mid-2015, in order to clamp down on widespread evasion (as detailed above) by wholesale and retail traders, the government levied a withholding tax on banking transactions on traders who did not file their tax returns (non-filers). After several months, the government relented and offered an amnesty scheme to the traders, which neither yielded substantial tax revenue nor led to a noticeable increase in in filing of returns by traders.

III. Recent Developments

The Finance Act, 2016 was by and large a continuation of the government’s policies in previous years: tax rates were increased, the scope of the withholding and advance tax regime under the income tax system was broadened to include further transactions, the differential in rates of income tax collected levied at source (withholding and advance tax) was increased, conditions for favorable tax treatment of new industrial undertakings were relaxed and certain exemptions were withdrawn. In doing so, the majority of commentators argue that the Finance Act, 2016 lacks imagination and failed to introduce measures to tackle the underlying problems with the tax system in Pakistan.

A summary of the main changes affecting businesses introduced by the Finance Act, 2016 is shown below.

A. Increasing Tax Revenues through the ‘‘Rate’’ Effect

The Finance Act, 2016 extended the application of the ‘‘super tax’’ introduced in 2015 for a further year. Such tax is chargeable at the rate of 4 percent of the income of banking companies and 3 percent of the income of companies with an income of over 500 million rupees. Furthermore, for the purpose of the computation of income for the purposes of the levy, depreciation and business losses have been specifically excluded. The extension of this levy, which was initially introduced as a one time levy, and the exclusion, will further burden taxpayers who already contribute the substantial portion of the corporate income tax receipts. The measure is therefore inequitable and will hamper economic growth of large companies.

The Finance Act, 2016 also removes an exemption on income derived from inter-corporate group dividend to companies eligible for group relief. Furthermore, the ability of companies to surrender business losses to holding companies has been restricted to an amount that is proportionate to the shareholding of the holding companies in the company surrendering the losses. Provisions for group taxation and group relief were introduced in 2007 after a detailed study and thorough deliberations between stakeholders. The curtailing of the benefit of such provisions discourages the formation of corporate group ownership structures in favor of direct ownership. Corporate group ownership structures had emerged in Pakistan after the introduction of reforms in 2007, which aimed to bring the tax system at par with international standards. After formation, many of these entities had listed on stock exchanges. A roll back, albeit partial, of such reforms will dent investor confidence in the continuity of governmental policies.

Companies that declare gross loss before depreciation and inadmissible expenses have now been made subject to the minimum tax regime under which income tax must be paid on turnover. The concept of a minimum tax militates against the principle that income tax is chargeable on the profits of a business and was introduced with the objective of taxing persons who were falsifying their accounts (in most cases by overstating expenses) in order to escape income tax liability. A necessary evil of minimum tax is that it would also be equally applicable to companies genuinely making losses. By expanding the scope of minimum tax as the government has done under the Finance Act, 2016, companies that undergo a cyclical downturn (e.g. due to a surge in prices of inputs) have been burdened with minimum tax. In some cases, the additional burden could mean the difference between survival and closure of businesses. However, the levy of minimum tax is not exclusive to Pakistan. A number of developing countries experiencing tax evasion by businesses have introduced the levy. Research suggests that minimum taxes can reduce evasion by up to 70 per cent of profits.

The rate of tax applicable to income from services rendered outside Pakistan and construction contracts executed outside Pakistan has been raised between 3.5-5 fold. Previously the tax rate was at par with that which continues to be applicable to income from export of goods. The measure represents yet another instance of the government attempting to resolve the problem of low collection of taxes under this head by increasing the rate of tax rather than effective enforcement through increased monitoring.

B. Encouraging Compliance

The present government has sought to encourage compliance with income tax laws primarily by introducing higher rates for collection of tax at source for persons who do not file returns. Such policy has been continued in the Finance Act, 2016, which increases the difference between the rates of such tax applicable to filers and non-filers. Furthermore, the Finance Act, 2016 levies advance tax on insurance and leasing of vehicles in the event that policyholder or lessee, as the case may be, is a non-filer. Although the unfavorable tax treatment of non-filers undoubtedly presents an additional burden on this group of tax-payers and yields additional revenue to the government, the measure has not resulted in a marked increase in the number of persons filing tax returns. Despite the vast expansion in the scope of collection at source provisions and imposition of higher rates, particularly for non-filers, collection increased by only 12 percent in tax year 2016. In many cases, people prefer to bear the additional burden and continue not filing tax returns, as doing so would increase their overall tax liability. Furthermore, due to a perception of high handedness on the part of tax collection agency, non-filers apprehend that if they file tax returns, they shall be exposing themselves to audits and recovery proceedings, and thereby face harassment as well as expend time, effort and significant costs.

The government’s strategy of creating a distinction between tax filers and non-filers and setting up a regime of differential taxes is a short term measure which attempts to generate revenue without reforming the tax collection agency and documenting the economy. Many commentators state that it is providing the wrong incentive to non-filers—to continue to legally stay out of the tax net by paying a nominal differential.

Another measure to encourage overall compliance introduced by the Finance Act, 2016 is increasing the tax credit from 2.5 percent to 3 percent of tax payable for the year for those manufacturers registered under the Sales Tax Act, 1990 who make 90 percent or more sales to persons registered under the aforesaid Act. It is doubtful whether such measure really qualifies as an incentive: the ability of a person to make sales to registered persons is dictated for the most part by the norms of the relevant industry and the extent to which customers of a certain product are registered. Even otherwise, the increase in the tax credit could at best be described as nominal.

C. Broadening the Tax Base

One of the most significant changes introduced by the Finance Act, 2016 was with respect to tax on sales of immovable property. Whereas previously, the ‘‘fair market value’’ of the property was determined with reference to valuation tables for each area published by Provincial Governments, which were a fraction of the actual market value, the Finance Act, 2016 provided that fair market value would be determined by a valuer licensed by the central bank. Such a drastic change caused widespread panic within investors, particularly in light of the fact that immovable property is commonly used to store, (and in many cases) conceal wealth in Pakistan, and has paralysed the real estate market. In just over a month after the enactment of the Finance Act, 2016, the Federal Government notified revised valuation tables having rates higher than those under the tables published by Provincial Governments but significantly lower than actual market values. Although reports suggest that real estate prices have fallen on average by about 20 percent since the publication of the valuation tables by the Federal Government, it appears, at least for the time being, that the revised measures will remain in place.

Another measure introduced in the Finance Act, 2016 which would contribute towards broadening of the tax base is the introduction of a tax on the profits and gains of builders and developers of residential, commercial and other buildings and plots at specified per square foot rates for various parts of the country. The aforesaid measure is in the nature of a presumptive tax in that it applies irrespective of whether the builder or developer accrues taxable income. As is the case with such measures, those builders and developers who are compliant will suffer additional burden if their profits are lower than expected. However, given that construction and development activity is on the rise and that the sector does not contribute its share of income tax under the existing regime, the measure is justifiable. Tax liability under the new measure can be easily determined, without reference to income or expense, thus substantially reducing the revenue collection agency’s cost of enforcement.

D. Incentives to Businesses

The Finance Act, 2016 extended the time period for application of existing incentives (in the form of tax credits) available to industrial undertakings, and in one case relaxed the conditions applicable thereto. However the legislation did not introduce new incentives but retained various exemptions already granted to a of number of sectors, including renewable energy, agribusiness, halal meat, industrial undertakings set up in Balochistan and Khyber Pukhtunkhwa, electricity transmission, manufacture of mobile phones, power generation, coal mining, export of software and IT services and LNG terminals.

The application of tax credit to companies investing in plant and machinery for replacement or expansion, setting up new industrial establishments, financing of plant and machinery by existing industrial establishments through equity financing, which was previously applicable to plant and machinery installed or industrial establishments set up until June 30, 2016 has been extended to June 30, 2019 by the Finance Act, 2016. Furthermore, the tax credit available to companies establishing manufacturing units generating employment has been extended to manufacturing units set up until June 30, 2019.

A tax credit equal to 20 percent of the tax payable which was allowed to companies in the year of their listing on a stock exchange has been extended to apply to the year after listing. Whilst the above measure incentivizes companies to offer shares to the public, in light of the restrictions on the exemptions available to companies eligible for group relief introduced by the Finance Act, 2016, in practice, the expansion in the scope of the tax credit may not attract companies to list on stock exchanges in the country.
Furthermore, the condition that a new industrial undertaking and plant and machinery of an existing company be financed entirely through equity in order to be eligible for tax credit has been relaxed to 70 percent equity. However, the amount of the tax credit has been pro-rated to the proportion of equity financing.

E. Streamlining of the Tax System—Recent Trends

1. Interplay between Federal and Provincial Taxes

Pursuant to amendments introduced by the Finance Act, 2016, sales tax on services paid to Provincial Governments under legislation imposing a sales tax on services will no longer be considered an input tax for the purposes of determining tax liability under the Sales Tax Act, 1990, the Federal legislation imposing a tax on the sale of goods. Indirect taxes paid to the Provinces shall not reduce the incidence of sales tax paid to the Federal Government. This has been one of the most roundly criticized measures introduced in the Finance Act, 2016 and is inconsistent with the value added regime adopted by the Federal and Provincial Legislatures for taxing goods and services respectively. The measure which amounts to dual indirect taxation will also increase reliance on indirect taxation and increase regressivity of the tax system. Shortly after enactment of the Finance Act, 2016, a number of litigants challenged the aforesaid measure before the High Court of Sindh and obtained interim relief, which remains in effect.
Furthermore, input tax adjustment will no longer be available to supplies which are not recorded in the return filed by the supplier or in respect of which the supplier has not paid tax. This will effectively penalize a recipient of a taxable supply for the acts of the supplier over which the former has no control. This measure, besides being inequitable by further burdening already compliant taxpayers, also marks a departure from the value added regime adopted in the sales tax laws applicable to goods and services.
The Finance Act, 2016 imposes an advance tax on persons who do not file income tax returns but file returns under the Provincial laws levying sales tax on services. The measure has been met with much resistance from the Provinces who view it as yet another instance of the Federal Government delegating to the Provinces its responsibility to collect income tax without paying any collection fee in return.

2. Taxes on an Inter-provincial Plane

Following a Constitutional amendment in 2010, which conferred on Provinces the exclusive right to tax the sale of services, the Provinces (in particular Sindh and Punjab) have dramatically increased tax revenues from such tax. However due to lack of coordination, competing objectives and mistrust between the provincial governments, the respective provincial taxing statutes are anomalous and inconsistent. Whereas Sindh taxes services on the basis of their origin, Punjab does so on the basis of their receipt. By doing so, each Province has sought to maximize its economic advantage by framing the law in a manner that will yield it the highest revenue. However, taxpayers are unjustly burdened in cases where services provided by taxpayers in Sindh to customers in Punjab.

3. Procedural Measures

One of the most significant changes that has recently been brought about with the objective of reducing evasion and minimizing delays in processing of refunds and interaction between taxpayers and the revenue collecting agency is the introduction of the Sales Tax Real Time Invoice Verification system. Under the system, registered persons will be required to electronically submit invoices for the previous month by the 10th of the next month and then file their returns by 18th of that month. The Federal Board of Revenue (‘‘FBR’’), the revenue collecting agency for the Federal Government, will be able to cross check and verify invoices submitted by various taxpayers to monitor compliance, reduce evasion and expeditiously process refund claims eliminating the need for post return interaction with taxpayers.

Through another measure with a similar objective, namely the Monitoring and Invoice Verification System, the FBR aims to compile and monitor data relating to sales by government vendors who, according to FBR officials, in many cases, charge the entire amount of sales tax but deposit only a fraction in the treasury. Given that the Federal and Provincial Governments spend significant amounts on goods and services, the measure will ensure a significant reduction in evasion.

IV. Looking to the Future

The Federal Government has sought to increase tax revenues by 16 percent in tax year 2017 and has set a target of 3.6 trillion rupees for that tax year. As of August 2015, the Federal Government was aiming to raise the tax to GDP ratio to 15 percent by tax year 2018. However, given that the tax to GDP ratio as of tax year 2016 stood at 10.5 percent instead of 11.5 percent then targeted, the timeline for achieving a tax to GDP ratio of 15 percent has been extended to 2020. Commentators are nearly unanimous that the target cannot be achieved without substantive and coordinated reforms to document the informal economy and broaden the tax base. Substantive reforms to the tax system are not expected to be introduced before the next general elections, which are due to be held in early 2018.