The futility of tax amnesty schemes

Tax amnesty schemes are one of the major factors causing distortions in the system, says Tax Reforms Commission Report

The amnesty package for the non-filers among traders of income tax returns, offering them to declare their hidden assets of up to Rs50 million by paying a nominal one per cent of the declared amount in taxes, was bound to fail because no such scheme in the past had achieved the desired objectives mainly due to the incentive for dishonesty inherent in them. Until March 15, which was the last date of the scheme before it was extended till March 31, the total number of returns received was 3,647 with a tax amount of Rs356 million since the scheme’s inception in February. The target had been to bring in one million new traders into the tax net.



According to the recently compiled Tax Reforms Commission Report, tax amnesty schemes are one of the major factors causing distortions in the system. In a democracy, the most important objective of taxation is to provide economic justice, which relates to distribution of tax burden and benefits of public expenditure, while maintaining vertical and horizontal equity. Taxation of the rich for the benefit of the poor is at the core of social democracy. It encompasses, besides redistribution of wealth, such questions as treatment of weaker sections of society, for e.g., women, children, minorities, the disabled and unemployed. All these elements are missing in our polity. Successive rulers have used taxes as a tool to extort from the public as much as possible for their own comforts and luxuries. Our financial managers are caught up in a dilemma. On the one hand, there is mounting pressure to reduce fiscal deficit through improved collections and on the other, they are not ready to abolish innumerable tax exemptions available to the mighty. Our politicians lack the willingness and vision to achieve a sensible balance between income, capital and consumption taxes. Pakistan needs more investments in creating human capital and necessary public infrastructure to increase the economy’s productivity. Besides, extremely poor compliance levels and awful enforcement; presumptive taxes and lack of documentation; adhocism in terms of economic and fiscal policy and a flawed tax system; and lack of consideration for values and integrity, are some of the factors that discourage development of a tax culture in the country. It is high time our policymakers accepted that tax amnesty schemes can never provide any long-term benefit to the economy.

Published in The Express Tribune, March 21^st,  2016.

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