The umpteenth amnesty scheme

All similar schemes have failed to yield the desired results

M Ziauddin June 01, 2019
Development comes as major boost to PML-N and its plans.

An Assets Declaration Scheme was announced by the government earlier this month. Under the scheme, assets within the country and abroad, except for real estate, can be whitened after paying a rate of 4%. The whitened cash assets will have to be kept in Pakistani bank accounts. For people wanting to keep their whitened money abroad, a rate of 6% will be charged. For the declaration of real estate, its value will be considered 1.5 times more than the FBR-assigned value to bring it on a par with the market rate.

It is perhaps the umpteenth amnesty scheme announced by Pakistan to unearth the evaded tax and avoided billions. But all these schemes have failed to yield the desired results. Only a paltry amount has come into the treasury as a result and these schemes never helped in documenting the economy. Interestingly, the Tax Reforms Commission, constituted in 2014, had identified tax amnesty schemes as one of the major factors causing distortions in the system. Indeed, these schemes have been identified as incentives for dishonesty.

Along with this scheme, the following have been identified by various studies on the subject as the major reasons for the crisis in the taxation system: 1) extremely poor tax compliance levels and awful enforcement; 2) presumptive taxes and lack of documentation; ad hoc-ism in terms of economic and fiscal policy and a flawed tax system; lack of consideration for values and integrity; serious under-performance by the IT support; the SRO culture; exemptions, concessions and reduction in the tax rate; inadequate facilitation of taxpayers; adversarial relationships; inadequate focus on technology and training of users; lack of research and analysis. Overall organisational development and management training in tax administration is ignored blatantly. In audit selection, no clear criteria based on automated systems and good data is used. Revenue forecasting for each tax type, taxpayer type and geographic region is not done at all. What is, therefore, needed to be resolved is improving the culture and management capacity of the FBR to willingly support a reform programme. Frequent changes provide opportunities for increased discretion and corruption, insufficient knowledge of taxpayers on their tax obligations and decreased motivation to comply with tax demands. This, in turn, reinforces adversarial relationships between taxpayers and tax collectors. What is needed is public advocacy in terms of enhancing taxpayers’ education and facilitation, encompassing a well-coordinated communications programme, promoting development of greater compliance and a user-friendly, supportive interface between the FBR and taxpayers, incorporating best international practices, including transparency, fairness, simplicity, automation, cost-effectiveness, a quality assurance monitoring programme, easy-to-comply-with forms and document requirements compatible with a computerised filing.

In view of the seriousness of the situation, one can only applaud Prime Minister Imran Khan for making a passionate public appeal to Pakistanis to declare their benami assets and bank accounts by June 30 in order to avoid legal action.

Undoubtedly, PM’s successes in mobilising funds for charitable purposes were perhaps the major motivating factor that had encouraged him to make such an appeal. However, when viewed in the context of the general belief that you don’t let your left hand know what you have given in charity with your right hand, the PM’s appeal appears rather misplaced. Most Pakistani philanthropists conduct their work of charity in the safety of absolute secrecy. That is why perhaps while responding positively to appeals for charity, our philanthropists act hugely generously; but appeals for declaring their ill-gotten wealth get a totally different response from them. Such appeals have always gone unheeded because you cannot eat the cake and have it too — that is once you declare your ill-gotten wealth, it cannot be kept a secret, it becomes public property and comes under the tax radar!

Published in The Express Tribune, June 1st, 2019.

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