Another amnesty

In 1958, Field Marshal Ayub Khan, Pakistan’s first martial law ruler, announced the country’s first tax amnesty scheme. Pakistan’s first martial law ruler managed to bring 71,289 people into the tax net. The new taxpayers declared Rs1.3 billion.

In 1969, General Agha Muhammad Yahya Khan, Pakistan’s second martial law ruler, announced the country’s second tax amnesty scheme. Pakistan’s second martial law ruler managed to bring 19,600 people into the tax net who declared Rs920 million.

In 1976, Zulfikar Ali Bhutto, Pakistan’s first civilian martial law administrator and its 10th prime minister, also brought in his own tax amnesty scheme under which Rs270 million was paid in taxes.

In 1986, General Muhammad Ziaul Haq, Pakistan’s third martial law ruler, announced the country’s fourth tax amnesty scheme without much success. In 1997, the then PM Nawaz Sharif, Pakistan’s first businessman-prime minister, announced his own tax amnesty scheme that brought in a meagre Rs141 million.

In 1999, General Pervez Musharraf, Pakistan’s fourth military ruler, announced Pakistan’s fifth tax amnesty scheme without much success. In 2008, the PPP government, led by the then president Asif Ali Zardari, announced its own tax amnesty scheme that brought in a paltry Rs2.8 billion.

In 2016, former PM Nawaz Sharif announced another tax amnesty scheme under which the government had expected to bring in a million new taxpayers. Lo and behold, only 128 people participated in the scheme, which was a total failure.

Why do tax amnesty schemes fail? To begin with, there’s a fine line between tax evasion and assets accumulated through corruption. Yes, there’s tax evasion in Pakistan. But the amounts do not run into trillions of rupees (as the IMF, the World Bank and our governments continue to claim). My estimate: around 90 percent of assets accumulated within and outside the country by Pakistanis are corruption-related and not related to tax evasion. Consequently, assets accumulated through corruption will never be declared under any amnesty scheme (because ‘assets beyond known means of income’ are punishable under criminal laws).

Why do tax amnesty schemes fail? Research suggests that a “tax amnesty can be successful only if it is perceived as a unique event. Many countries offering tax amnesties on a repeated basis have met with little or no success after the initial programme. The reason is fairly simple. If the citizens of a country expect there to be more than one amnesty, they have little or no incentive to report or redress an offence immediately. In fact, because they expect a future amnesty, they have an incentive not to pay current taxes”.

Why do tax amnesty schemes fail? An “amnesty alone may not be sufficient to induce delinquent taxpayers to declare unreported income. They may come forward, however, if the amnesty is accompanied by the increased likelihood of detection”.

Why do tax amnesty schemes fail? To be certain, “tax evasion is often the result of high tax rates and poor economic policies… amnesties have also proved more successful when they have been part of an overall package of tax changes”.

Will our government learn from our own history? Will our government learn from research done elsewhere? Hopefully.

The writer is a columnist based in Islamabad.

Email: farrukh15@hotmail.com Twitter: @saleemfarrukh