Voluntary tax compliance scheme: The govt retreats and loses a tactical battle

Root causes of tax evasion like smuggling left unaddressed, targeting traders will continue to be difficult


Shahbaz Rana January 31, 2016
Root causes of tax evasion like smuggling left unaddressed, targeting traders will continue to be difficult. PHOTO: FILE

ISLAMABAD:


Filing tax returns is legally binding on every citizen who passes the threshold income level – the matter is not up for debate.


But when the government has to step back, twist the law and name the scheme ‘voluntary’ even though it is legally binding, we know it has lost a tactical battle.

With approval of the scheme from the National Assembly last week, the government has sown the seeds of another bonanza in the future, as the package has been extended without addressing root causes that led to the accumulation of hidden assets.

PM launches Voluntary Tax Compliance Scheme

Months after the government levied withholding taxes on banking transactions valued at over Rs50,000, protests and negotiations with upset traders began.

With one half of the fiscal year over, the government extended its friendly hand to traders through a Voluntary Tax Compliance Scheme, which would be used to legalise black money by paying a nominal 1% tax. The chances of this scheme becoming a success do not seem to be bright since, to begin with, the Federal Board of Revenue (FBR) does not have primary data on targeted traders.

It has prepared the scheme by relying on the database of electricity distribution companies.

The absence of primary data has therefore provided a backdoor entry to every citizen who can claim to be a trader and whiten his illegal and undeclared assets.



Secondly, there is a fear that after availing the scheme, people might wind up their companies or units registered with the FBR and start business with a fresh name that will not be registered with tax authorities. The scheme has also created a permanent distortion in the tax regime, as the traders will not pay tax on the basis of their actual income. The government will rather charge a paltry sum based on the turnover, which, experts say, traders would recover from customers’ pockets.

The scheme had been under consideration since October last year and the government had been waiting for an appropriate time to unveil it. It officially announced the package after the Executive Board of the International Monetary Fund (IMF) approved the ninth review of Pakistan’s economy.

PTI divided as PPP joins the chorus against tax amnesty scheme

What the scheme is

Officially dubbed as the ‘Voluntarily Tax Compliance Scheme’, traders have been offered to declare up to Rs50 million of working capital by paying a nominal 1% tax.

As for the future, the trader with Rs50 million turnover would pay 0.2% in tax. For the ones having turnover ranging from Rs50 million to Rs250 million, the rate will be 0.15% plus Rs100,000 and for those having a turnover of over Rs250 million, there will be  0.1% plus Rs400,000 tax.

For tax year 2016, the traders will declare at least three times higher turnover. For tax year 2017-18, the traders will pay 25% tax, higher than the one paid in the previous year. The traders availing this scheme will be exempted from the audit for four subsequent years, which the trading class will fully exploit to under-report their sales. The scheme has also been extended to even those traders who are already in the tax net. They can avail the package by paying 10% higher tax than originally paid for this year or 25% higher tax than paid in the tax year 2014.

The government has given two main reasons for justifying what the political opponents called ‘an unconstitutional move’, as the offer was limited to only the trading class.

In its first excuse, the government says the tax base was extremely narrow comprising of only about 1 million people. Secondly, traders had to be given a chance to whiten their assets that had been undeclared due to multiple reasons.

NA panel passes tax amnesty scheme

A main source, however, of the undeclared inventory is smuggling. According to a confidential report, the FBR states that this smuggling had been going on with ‘full support of the officials’.

The government, though, has offered the scheme without taking any measures to curb border smuggling.

Until the government addresses the issues of smuggling and under-reporting, people will continue to accumulate assets, and the government would go on offering one amnesty scheme after another, says Pakistan Tehreek-e-Insaf’s Member National Assembly Asad Umar.

The government says that its decision to slap 0.6% withholding tax on all banking transactions valuing over Rs50,000 had brought the traders to their knees. “The amnesty scheme would allow them to avoid the axe of 0.6%.”

In all the drama that unfolded, honest taxpayers will continue to get the wrong end of the stick.

the writer is a staff correspondent 

Published in The Express Tribune, February 1st,  2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

COMMENTS (3)

feedback | 8 years ago | Reply Who is the government? A group of billionaire's business men. Hence it is the stupidest thing to say that the government lost the tactical battle. You can't battle against yourself. Simple as that. If you want example's, just check the assets of petroleum minister, prime minister.
Johnson Jones | 8 years ago | Reply This scheme is nothing but a tax amnesty scheme where ill gotten wealth/assets would be cleansed.What a pity that even in 2016 such schemes are floated by governments. The author of the article is very right in his assessment. This scheme and low tax payer numbers of tax filers clearly shows utter and total failure of Pakistan Tax Collection authority ---Federal Board of Revenue. Major tax reforms are needed in Pakistan on very urgent basis.
VIEW MORE COMMENTS
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ