Have amnesty schemes ever worked?

The PTI government has launched its first amnesty scheme. Around 3% tax has been recommended on undeclared sales while the scheme will also follow on benami accounts. People residing in Pakistan can declare their property after paying 4% tax before December 31 while 2% tax will be applicable in case of those who declare assets by September 30 of this year. Those residing abroad will have to pay 6% in taxes and declare their assets in accordance with the scheme.

However, this is not the first scheme of its kind, and more than a dozen amnesty schemes have been offered since 1958. The country’s first tax amnesty offered in 1958 had brought 71,289 people into the tax net as well as an amount of Rs1.3 billion. The amnesty scheme of 2018 brought 80,000 people into the tax net along with Rs121 billion in tax collection.

However, the tax-to-GDP ratio in Pakistan is still very low as well as the number of taxpayers when compared with other countries in the region. During FY 2013-14, the tax-to-GDP ratio used to be 9% which has reached to 11.2% in FY 2017-18. So, the question is: why do our tax amnesty schemes fail?

To begin with, tax evasion and asset accumulation through corruption are two different acts. Yes, there’s tax evasion in Pakistan, but the amount in question is not too high, as claimed by the IMF, the World Bank and our successive governments. And assets accumulated via corruption are never ever declared under any amnesty scheme because accumulating assets beyond known means is punishable under the law.



The reason why the various tax amnesties schemes have met with little or no success is simple: if people know that one amnesty scheme will be followed by another, they will be hardly pushed for compliance.

Another reason behind the lacklustre response to the amnesty schemes is the non-seriousness of the tax recovery body about developing the scheme.

Further, the scheme is not accompanied by a set of structural reforms meant to be used to consolidate the gains, if any. People don’t pay taxes since they think they won’t get caught.

Here are some recommendations for making such schemes more effective:

Firstly, the tax base can only be broadened through an efficient tax mechanism making sure that tax evasion will subsequently lead to punishment. Prior amnesty schemes failed to define any punitive measures, leaving potential candidates unable to do any kind of cost-benefit analysis required for making up their minds.

Secondly, the authorities should make a well-structured post-amnesty taxation reforms package and take legal action towards the individuals not availing of the amnesty. Only then can one expect significant broadening of the tax base.

Thirdly, FBR officers need to take part in preparing the draft scheme and the employees should be offered incentives against efficient services to taxpayers meant to bridge the trust gap between taxmen and taxpayers.

Lastly, regardless of when the tax amnesty draws to a close, even if the revenue received is much lesser than the target, the actual gain is reaped from the information collected, which can be used later to discover conceivable sources of taxation for the following years. 

Published in The Express Tribune, June 19^th, 2019.

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