Focus
Less than two months before the end of its tenure, the government has launched its long-awaited tax amnesty scheme primarily aimed at widening the tax base in a country of over 200 million people where there are only 3.4 million registered taxpayers and just one-fifth of them actually pay taxes.
The framers of this policy say the main objective of the scheme is not to meet its revenue targets but encourage more people to join the tax net of the country.
The government officials have been mulling for months to prepare a package of tax reforms that on the one hand should lessen tax burden on those honestly paying taxes and on the other hand lure those living in the country or abroad, and not paying the tax to join the net by paying a nominal fine. Prime Minister Shahid Khaqan Abbasi unveiled the package with a hope that it would go a long way in helping the government in documentation of the economy and encourage people to voluntarily pay the taxes.
Under the scheme, the people having annual income less than 1.2 million rupees have been exempted from income tax, while those having not declared their assets and property within Pakistan could get them registered by paying five percent tax. Similarly, wealthy Pakistanis living abroad could whiten their hidden black money by paying nominal taxes ranging from two to five percent.
Pakistan has a long history of launching amnesty schemes aimed at whitening the black money.
According to some estimates, Pakistan’s informal economy is almost double of the existing formal economy.
Scores of amnesty schemes have been launched in the country since 1958. However, none of those schemes achieved any objective mainly because of lack of innovative measures that could have encouraged people holding hidden money to join the tax net.
But the government officials are very hopeful for the success of the new asset whitening scheme as they believe that in view of emerging international environment it is becoming difficult to keep hidden assets abroad.
A big number of Pakistanis have purchased expensive properties either in Gulf countries or in Europe and have also parked their money in the banks of these countries. In recent years, these countries have introduced stringent measures to scrutinise these assets and bank accounts. The British government recently introduced “Unexplained Wealth Orders” whereby British authorities were given investigative powers to unearth corrupt property and assets.
Similarly, the governments in the Gulf countries, particularly the United Arab Emirates – the choicest safe haven for many Pakistanis to buy prized property there – have also introduced new laws to probe properties and bank accounts of non-resident citizens as part of international efforts to crackdown on money laundering and corrupt money.
Pakistani authorities believe that many Pakistanis would find it difficult to move their assets elsewhere in the world and it would be better for Pakistan to lure these people back to their country and formalise their capital by paying nominal taxes.
The new scheme drew mixed reaction from the cross section of society with some calling it a “bold step” as it would promote tax culture in the country and help documentation of the economy.
However, opposition politicians, particularly chairman of Pakistan Tehreek-e-Insaaf, rejected the scheme saying that the government is giving incentives to those people who have plundered the money at the expense of honest tax payers.
The International Monetary Fund (IMF) has traditionally opposed such schemes saying even if they succeed they are not a permanent solution to fill up the budget gap and the governments should take effective measures to expand the tax base and crackdown on tax evasion on permanent basis.
Critics have also questioned the logic of introduction of the scheme by the government just weeks before the expiry of its term and said the government should have left it to the next elected government after general elections to take such major decisions having long-term consequences.
Prime Minister Abbasi defended the move that the government has “executive authority” to take such decision as it has mandate from the people of Pakistan but critics say the government may have legal authority to do so but it lacked moral authority to take such decisions.
Critics say the government, which has launched a country-wide campaign to ensure supremacy of the parliament after ouster of its supreme leader Nawaz Sharif, has taken such a major policy decision without taking the parliament into confidence.
Moreover, they say it seems the government has launched the scheme without taking provinces into confidence despite that success of the scheme would largely depend on provinces, as a major part of it deals with real estate and property issues which are relevant to provincial governments. Miftah Ismail, the de facto finance minister and the moving spirit behind the new scheme, says the federal government had written a letter to the provincial administrations with regard to the scheme but it seems no consultation was held after that.
Critics say it would have been better for the government to consult political parties and try to forge a national consensus on such a vital policy decision before introducing it as it would have avoided unnecessary political polarisation.
If one goes by the chequered history of the country, the successive governments traditionally find faults in policies and schemes of their predecessors, however good they might be, and do not hesitate to discard them.
According to critics, the caretaker government would have very little time to implement this policy as it would be more focused on holding of general elections. Therefore, the fate of this policy hangs in balance unless the newly elected government is convinced to continue with it.
The writer is a senior journalist based in Islamabad