KARACHI: A tax amnesty scheme proposed by the lawmakers to bring the multibillion dollars of the informal property transactions into the tax net will set a wrong trend and discourage law-abiding citizens, analysts said on Monday.
The analysts said any amnesty scheme proposed for the real estate sector’s investors will allow them to formally launder their ill-gotten money. “There must be no amnesty, as it is not beneficial for the economy, and will discourage genuine taxpayers,” said analyst Khurram Schehzad at JS Global Capital.
A parliamentary body proposed the government to grant onetime tax amnesty to real sector’s investors. Under the proposal, a fixed three percent tax on the difference of declared value and valuation table of the Federal Board of Revenue will be introduced.
The problem of black economy in Pakistan is pernicious and transactions that take place outside formal channels amounts to around 20 percent of the country’s annual $250 billion gross domestic product.
Previously, the incumbent government tried to get tough on the tax evaders as well as offered at least three amnesty programs to legalise black money. But, all the previous schemes failed to significantly widen the tax base and limit black money. Currently, less than one percent of the country’s population pays taxes.
Recently, the tax authorities revised up valuation tables for calculating taxes on properties and to bring uniformity in tax assessment nationwide. Following the government’s action, property prices dropped and transactions waned.
Analyst Zeeshan Afzal at Insight Securities said the political cost of an amnesty scheme will be high at a time when India opted to penalise the informal sector. Recently, Indian government banned high-denominated currency notes of 500 and 1,000 rupees to curb corruption.
“Pressure is also building up in Pakistan to introduce similar measures,” Afzal said. Recently, the Pakistan Peoples Party introduced a bill to demonetise higher denomination notes.
The government is also mulling to withdraw high-valued prize bonds. The Tax Reform Commission advised the government to withdraw high-denominated prize bonds for prevention of tax evasion and incidences of corruption. “Issuance of prize bond of Rs25,000 or Rs40,000 needs to be discontinued as these high denomination bearer instruments fuel corruption and tax evasion,” it said in a report.