Money Matters

Amnesty for tax evaders!

Money Matters
By Zeeshan Haider
Mon, 01, 17


The government is all set to launch another tax amnesty scheme in the hope of broadening the tax net in a country where less than one percent of its 200 million population pays taxes.

But if one looks at the results of the earlier schemes the government has launched, or for that matter, schemes launched by its predecessors, then one can safely say it is hoping against hope.

Interestingly, the hint about the impending amnesty scheme has been dropped by no person other than the finance minister Ishaq Dar, who has been issuing stern warnings to the tax dodgers.

He has recently been quoted as vowing to make the life of tax evaders extremely difficult.

The proposed scheme would be across-the-board covering all Pakistanis living inside and outside the country. Anyone who has been issued a computerised Pakistani identity card can avail this scheme which, as per the proposal, will last for six months.

Under the proposed scheme, a person can legalise all his undeclared assets, inside or outside Pakistan, by surrendering only five percent of them to the government in the first two months of the launch of the scheme.

Those availing the scheme within three to four months of its launching would have to deposit 7.5 percent of the assets value, while those declaring their ‘undeclared’ wealth in the last two months of the scheme, would have to surrender 10 percent of the value.

Those failing to avail this opportunity, as per the proposal, would be jailed for up to ten years, and would also have to pay 35 percent income tax as well as huge penalty for concealing their wealth.

The government officials have always defended such schemes on the plea that they not only help generate revenues for them but also assist in broadening the tax net of the country.

However, critics say such schemes are a big injustice to the people who earn money through honest means and then honestly pay taxes on their income.

Interestingly, the latest scheme is being launched amidst a heated debate in the mainstream as well as social media over the plea bargain mechanism whereby a corrupt man is allowed to retain his massive ill gotten money by surrendering a very nominal portion of it to the government.

The proposed amnesty scheme is said to be framed against the backdrop of revelations made in the Panama Papers publishing names of hundreds of Pakistanis, including the family of Prime Minister Nawaz Sharif, who bought expensive properties abroad through offshore companies.

Moreover, many countries, including tax havens, are taking strict measures to check flow of ill-gotten money in the international financial system which is making it difficult to hide untaxed money abroad.

The banks in the United Arab Emirates – a major tax haven and a favourite choice for wealthy Pakistanis to invest their capital - have recently sent letters to their clients requiring them to provide information about their tax status in native countries in the coming months.

Analysts say the impending tax amnesty schemes seem primarily aimed at Pakistanis who have stashed their money in UAE and other such safe havens.

“First they plundered the country and took their money out of the country and now they are being facilitated to bring back that money without accountability,” senior economist Dr Shahid Hasan Siddiqui said.

“Such tax amnesties are meant to protect the interests of looters and plunderers. Such schemes have totally destroyed the taxation system of the country,” he added.

A number of tax amnesty schemes were launched by civil as well as military governments in Pakistan, but none dared to bring the powerful and influential lobbies into the tax net for political reasons.

Donor agencies, like the International Monetary Fund, as well as donor countries, like the United States and the United Kingdom, have repeatedly urged the Pakistani rulers to broaden the tax base by bringing the untaxed sectors of the society within the tax frame, but no serious effort was made in this regard.

In 2010, Hillary Clinton, then US Secretary of State, during a visit to Pakistan urged the PPP government to tax its elite if it wants to continue receiving financial assistance from her country.

 “This is one of my pet peeves: Countries that will not tax their elite who expect us to come in and help them serve their people are just not going to get the kind of help from us that historically they may have.”

“Pakistan cannot have a tax rate of nine percent of GDP when land owners and all the other elites do not pay anything or pay so little it’s laughable. And then when there’s a problem, everybody expects the US and others to come in and help,” she had said.

Same sentiments were echoed when some British MPs called on their government to review aid to Benazir Income Support Programme, with one saying that UK own taxpayers are facing “more and more cuts on daily basis whilst we are providing benefits to the citizens of Pakistan”.

The current government’s claim of widening the tax net could be gauged from the fact that only 845,985 people filed their income returns for the tax year 2016.

Analysts say the taxation system of the country could only succeed if the ruling elite paid their taxes honestly.

“Charity begins at home,” senior economist and former government advisor Dr Ashfaque Hasan Khan said.

“The rulers do not have moral authority to ask the people to pay their taxes when they themselves evade them. First they must pay their taxes and then convince their families and cabinet to do this. They must also make their MNAs and MPAs and party leaders to follow their example and then ask the people to do the same.”

The proposed amnesty scheme is the fourth to be launched by the present government.

“This government has announced the biggest number of amnesty schemes in the history of the country,” Dr Shahid Hasan Siddiqui said.

The proposed general scheme comes in the face of the recommendations of the Senate Standing Committee on Finance to the government to announce a general tax amnesty after it proposed such scheme for the real estate sector of the country.

Such schemes did not succeed in the past and there are bleak chances of them bearing fruit in future. Pakistan has no other option but to introduce much-needed reforms to revamp its entire taxation system aimed at curbing corruption and exhorting people to pay their taxes honestly.

The writer is a senior journalist based in Islamabad