Dysfunctional amnesty

Arguments may be stacked up against the wisdom of offering domestic and offshore tax amnesty schemes but that has not dissuaded the government from scrapping it off its wish list. A corporate tax advisory firm has proposed that a domestic amnesty scheme be introduced while touting it as a sure-fire way to inject as much as $100 billion into the formal economy. The scheme, in one form or the other, has beguiled the prime minister in particular. Those who opt for this scheme and the federal government-backed offshore amnesty would escape prosecution under the Anti-money Laundering (AML) Act of 2010. The problem with such exemption from the law, despite it being limited to sections that come in line with the Income Tax Ordinance 2001 and Sales Tax Act of 1990, is that it does not meet with all round approval. The Federal Board of Revenue, for instance, is simply not interested. And for good reason too.

The advisory firm wants both amnesty schemes to be implemented in the interest of fair play and avoid the impression that it was implicitly discriminatory to honest and dutiful taxpayers. This is fuzzy logic at its best because the advisory firm recognises the weakness of the offshore amnesty vis-a-vis the Financial Action Task Force, which is unlikely to take a sympathetic view of the offshore scheme, and yet argues for a domestic amnesty scheme.

An amnesty scheme is only good if it successfully repatriates cash back into the national treasury that would otherwise stay parked outside. A sum of Rs100 billion is indeed an attractive addition. But can it be done?

Experience has not shown that it can. Nearly half of the parallel economy is believed to be held in the real estate sector. A government amnesty designed earlier for the real estate sector brought little or no significant improvement in state revenues. So it is back to the drawing board?

Published in The Express Tribune, April 4^th, 2018.

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