Whitening black money: Watchdog takes proposed tax amnesty bill to court

Transparency International wants Supreme Court to declare the draft legislation illegal.

ISLAMABAD:

The transparency body has decided to take the government’s proposed tax amnesty bill to court, saying it would allow any tax evader to “whiten his black money” up to Rs5 million by paying merely Rs40,000.

“This law would be a financial National Reconciliation Ordinance (NRO),” said Syed Adil Gillani, legal adviser to TIP, referring to the now defunct law.

“It would allow tax evaders to pay only Rs40,000 to legitimise assets worth Rs5 million,” Gillani said. This amount, he added, is currently paid on assets worth Rs500,000 under the income tax ordinance.

In its application to the Supreme Court, TIP has asked the court to take suo motu notice, and intervene “to save the exchequer from a huge loss.”

Such amnesty schemes have brought paltry revenue to the national exchequer while legalising enormous amount of black money, the transparency body has argued.

Details of the scheme

The government introduced the Tax (Amendment) Act 2012 in the last session of National Assembly and has the strength in parliament to have it approved.

If passed, the law would allow the tax evaders to have their ‘black’ money and assets, at home and abroad, whitened within three months against a nominal, one-time charge.

According to the proposed bill, the schemes allow a tax evader to pay Rs40,000 to legitimise assets worth up to Rs5 million in the first month. Those availing the offer in the second month will have to pay Rs50,000 and Rs70,000 in the third month.

If the amount of undeclared income, assets and expenditures exceeds Rs5 million, the tax evader will pay an investment tax worth 1% of the value of assets if the facility is availed in the first month. Those availing the offer in second month will pay 1.25% of the value of assets and 1.5% in the third month.

Tax-to-GDP ratio

TIP also brought to court’s notice the plummeting tax-to-GDP ratio of Pakistan.

The ratio was 13.7% in 1996, but has fallen to 9% in 2011. “The loss to the exchequer due to one percentage point in tax-to-GDP ratio is about Rs300 billion per year,” the TIP application said.

The Federal Board of Revenue brought a similar amnesty scheme in 2008 but the tax-to-GDP ratio did not improve in the last four years, the application added.

Penalties

TIP has also objected to the proposed penalties in the bill for those who fail to avail the amnesty schemes, including cancellation of CNIC, placement of tax evader’s name on the exit control list, freezing of their bank accounts and blocking of their cell phone SIMs.

Published in The Express Tribune, December 28^th, 2012.