Broadening tax base: Cabinet gives go-ahead to tax amnesty schemes

Bill to be vetted by law ministry then tabled in NA; electoral reforms bill also approved.

ISLAMABAD:

The federal cabinet has approved blanket tax amnesty schemes allowing tax dodgers to get their hidden incomes and assets legalised by paying nominal penalties – a move that the government claims would broaden the extremely narrow tax base.

Chaired by Prime Minister Raja Pervaiz Ashraf, the federal cabinet, in a meeting on Wednesday, linked the approval with detailed vetting of the proposed draft of the bill by the Law Ministry. After this procedure, the bill will be tabled in the National Assembly for voting.

The government has set up a limit of up to Rs5 million for both incomes and assets that can be whitened by availing these schemes. The government will not ask the source of income and previous tax cheaters will be considered to have a clean slate as long as they are honest taxpayers in the future.

The proposed bill promises immunity from the National Accountability Ordinance 1999, the Federal Investigation Agency Act 1974, the Companies Ordinance 1984 and the Foreign Exchange Ordinance 2002 if they avail the scheme.

Such blanket immunity from all types of prosecution is likely to raise questions of money laundering – a fear openly expressed by the International Monetary Fund (IMF) in its recent meetings with Pakistani authorities as well.

The argument in favour of the scheme is that it could help broaden the tax base which remains almost non-existent due to political compromises to appease vote banks, corrupt elements in the Federal Board of Revenue (FBR) that are annually helping 200,000 registered taxpayers exit the system and the corrupt tax cheaters themselves.

According to the FBR, the actual number of people who pay tax on their incomes is only 758,000. It told the federal cabinet that the FBR has identified 3.1 million people who are evading taxes, and, out of them, at least 1.3 million are expected to be brought into the tax net.

Proposed schemes

The first scheme that has been proposed is the Tax Registration Enforcement Initiative, which will be implemented through banks and the National Database and Registration Authority (NADRA) to register and bring more people into the tax net. A nominal fixed tax is proposed and provides cover to undeclared income worth up to Rs5 million. Significantly, the FBR has been kept out of the loop in this initiative to ensure corrupt elements do not, once again, facilitate tax evaders. This scheme is to overlook income tax only.

The second proposed scheme, known as the Investment Tax Scheme, is to provide a cover for regular taxpayers as well as evaders to declare undeclared assets, also up to the value of Rs5 million, by paying a token tax. They will also need to pay a tax on investments. The scheme will be administered through establishing special counters with the help of banks and NADRA.

Law and order

The federal cabinet also expressed concerns over the spate of violence in Karachi and said that miscreants are trying to create sectarian strife. The prime minister directed law enforcement agencies in all the provinces to beef up security arrangements for the upcoming holy month of Muharram.

Amongst the bills approved by the cabinet during the meeting was the Electoral Reforms Bill 2012, which contains the Code of Conduct for elections and bans participation in election campaigns by the president, caretaker prime minister and governors during official tours. The bill also bars everyone from criticising the army and other institutions mentioned in the constitution.

One of the proposals in the bill seeks an increase in the expenditure limit for election campaigns from Rs1.5 million to Rs5 million for a candidate contesting for national assembly seat and from Rs1 million to Rs3 million for those contesting for provincial assembly seats.

The cabinet also approved the Juvenile Justice System (Amendment) Bill 2012 in order to avoid any legal complications in important terrorism cases under trial. The approval is subject to vetting by the concerned ministries.

Published in The Express Tribune, November 15^th, 2012.