Amnesty schemes neither generate dividend nor high taxes

LAHORE: Tax amnesty schemes announced by various governments in Pakistan have neither paid any dividend nor increased the tax to GDP ratio; rather they force people out of the tax net.

Amnesty schemes are a message to the tax compliant entities to accumulate wealth illegally and wait for the system to create a loophole, that has happened every now and then since 2008.

Instead of plugging the loopholes that create black money, governments allow influential segments of the society to whiten their tax evaded wealth at a meagre penalty. Only a few who need to show white money in the country avail these schemes. Those who do not want to invest legally, ignore.

It is a fact that the grey economy in Pakistan is larger than the documented economy. If the government and some global consultants are to be believed, Pakistanis have parked around $200 billion in foreign countries; mostly the tax havens.

This in itself shows that the illegal wealth that Pakistanis hold outside Pakistan is 66 percent of the legally documented Pakistani GDP of $300 billion. The undocumented economy inside the country is in addition to the money parked abroad.

The proposed scheme is an attempt to provide influential Pakistanis a passage, before the governments of developed economies start disclosing their names and hidden wealth.

The developed economies are bound to do so under their recently approved law.

The incompetence or the inability of the Federal Board of Revenue (FBR) to apprehend tax evaders can be judged by the fact that the previous government announced amnesty scheme on big luxury cars that were smuggled and roaming on Pakistan’s roads.

If the main tax regulator is unable to catch the custom duty evader moving openly on the roads, we cannot expect it to probe cases where the wealth is not displayed so openly.

There may have been hundreds of cases where some imported luxury cars and paid millions in taxes. They must be ruing their decision when similar smuggled luxury vehicles were released at nominal fines.

In the same way, honest businessmen feel disgusted when their crook competitors whiten their money on concessions announced by the government.

The honest businessmen regularly pay huge amounts as taxes on their incomes while the cheats accumulate wealth for years and pay nominal tax only on that amount that they want to whiten.

Tax amnesty scheme was first introduced in 1958 by Ayub regime.

It generated revenue of Rs1.12 billion that in those days was a hefty amount. People were afraid of the first military regime in Pakistan.

After Ayub was gone, another tax amnesty scheme was announced in 1968 that fetched Rs920 million.

The amount received a decade later was low as the wealth creation was very high during the 1985-68 decade.

The amount recovered in 1975 scheme was also low as the FBR announced additional revenues of Rs1.5 billion only.

Thereafter, the tax regulator did not announce the actual amount received under various tax amnesty schemes announced in 1985, 1991 and 1998.

The highest recovery to date on tax amnesty scheme was achieved in 2000 when Rs10 billion were deposited in the exchequer by the tax evaders.

The scheme related to the declaration of movable and immovable assets.

When the same scheme was launched in 2008, the amount deposited reduced to Rs3.16 billion. This lower response was probably due to the fact that the government did not take any action against those who failed to whiten these assets in 2000.

Subsequent amnesty schemes floated from time to time got lukewarm response from the tax evaders. In fact tax deposited never crossed even Rs1 billion.

Those that indulge in under filing their production do not need to worry about justifying expansions.

They manage it through engineered remittances for which no questions are asked. This is a cheaper and safer avenue of investing money without paying any taxes. Experts are of the view that black money is accumulating in Pakistan at a fast pace.

The beneficiaries are not only those who completely evade taxes, but are also taxpaying businessmen who pay taxes partly and park remaining income outside.