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April 6, 2018

A comparison of global tax amnesty schemes


April 6, 2018

LAHORE: In what seems a concerted effort to fulfill his leader and predecessor Nawaz Sharif's unfulfilled promise of January 2017 to the business community, Pakistani Prime Minister, Shahid Khaqan Abbasi, Thursday gave the tax dodgers a chance to come clean through what can be dubbed a 'generous' amnesty scheme for undeclared local and foreign assets.

However, the PTI-led opposition has labelled it as a criminal rehabilitation scheme straightaway---asserting it is a move aimed at helping the rich and affluent to "whiten their black money" and get a safe passage in exchange.

Research conducted by the "Jang Group and Geo Television Network" shows that hints about this new tax amnesty scheme were actually dropped by disqualified Prime Minister Nawaz Sharif in January 2017 during an export trophy function held under the aegis of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI).

On a proposal forwarded by eminent business tycoon, Mian Idrees (the CEO of Sitara Chemicals Faisalabad), the-then Premier Nawaz had assured a galaxy of industrial magnates in Karachi that he would talk to Ishaq Dar, his Minister for Finance, Revenue and Privatisation, for promulgating a one-time tax amnesty scheme.

However, as luck would have it, Nawaz Sharif was disqualified on July 28, 2017 by Supreme Court after months of hearing.

Research further shows that in November 2016, a National Assembly panel had approved a blanket tax amnesty scheme to whiten an estimated Rs7 trillion of black money invested in the real estate sector, despite stiff opposition by the Federal Board of Revenue.

Although this scheme was seen as a defeat of the Finance Ministry, which had vowed to force people to pay their taxes on property transactions at fair market values just five months back, the National Assembly had approved this mega tax amnesty scheme on December 1, 2016 for the real estate sector.

The Lower House of Parliament had approved whitening of black money invested in this sector by paying only three per cent tax instead of recovering taxes.

Not defending the scheme in any way, which is visibly aimed at harnessing black money for productive purposes, Premier Shahid Khaqan Abbasi's incentive is not bad at all.

Heading a country with just 1.2 million filers, including only 0.7 million people who are actually paying taxes, the incumbent Pakistani Premier has basically extended the proverbial 'olive branch' to Pakistani citizens who have till date failed to report the previously undeclared assets to the tax authorities without any risk of prosecution.

Research reveals that a lot of countries have launched such money-whitening schemes in the past and have reaped dividends.

Here follow some precedents in this context:

In October 2016, the Indian tax amnesty had drawn $9.8billion in asset declarations.

An October 2, 2016 report of the "Financial Times" India had stated: "A four-month amnesty for tax evaders in India has resulted in the declaration of hidden assets worth nearly $10bn, the government has said, as it seeks to fulfill an election pledge to crack down on illicit "black money."The Income Declaration Scheme, which ran from June through September, allowed citizens to report assets previously undeclared to the tax authorities, without risk of prosecution. A charge of 45 per cent was to be levied on the assets declared under the scheme — one of the most conspicuous initiatives in Prime Minister Narendra Modi’s drive to tackle widespread corruption that is seen as a significant drag on the economy."

The widely-subscribed Indian media outlet had added: "Arun Jaitley, finance minister, told reporters at the weekend that assets worth Rs652.5billion ($9.8billion) had been declared under the scheme, implying a boost to government revenue of Rs294billion. The amnesty attracted 64,275 declarations, with the average amount declared standing at Rs10.2million. The initiative followed a similar one launched in 1997 that yielded revenue of Rs97.6billion, but Mr Jaitley said that the latest drive was firmer in its treatment of evaders, arguing that the previous effort had allowed them to make payments based on unduly low valuations of their assets."

The "Financial Times" had maintained: Liases Foras, a property research company, estimated in 2014 that 30 to 40 per cent of Indian real estate transactions involved an illicit cash payment. Firm progress in reducing tax evasion would boost the credibility of Mr Modi’s government, which made this a key part of its 2014 election manifesto. The US-based group Global Financial Integrity has estimated that Indians sent $343bn of assets abroad illicitly between 2002 and 2011."

Innumerable American states have had tax amnesties.

For example, the Los Angeles administration had collected $18.6 million in its 2009 tax amnesty programme, claiming that the amount was $8.6 million more than was expected and that businesses saved $6.7 million in penalties. The state of Louisiana had brought in $450 million from its 2009 tax amnesty programme, three times more than what was expected.

On June 26, 2012, the United States Internal Revenue Service (IRS), which the nation's tax collection agency, had said its offshore voluntary disclosure programmes had collected more than $5 billion in back taxes, interest and penalties from 33,000 voluntary disclosures made under the first two programmes.

According to reports of the Reuters, Financial Times, the New York Times, Canadian Tax Amnesty Service and the Wall Street Journal etc, the United States Internal Revenue Service, the Boston Globe and the Sydney Morning Herald etc, during 2014, an amnesty scheme was offered in Australia, prompting thousands of rich Australian to come forward to declare billions of dollars in untaxed assets and income stashed in bank accounts in Switzerland and in other countries. The vast majority of voluntary disclosures were related to income and shares.

In Canada, a tax amnesty scheme called the "Voluntary Disclosure Programme" already exists for income tax and Excise related offences.

The Canada Revenue Agency has given this relief for a 10-year period prior to the date of filing and covers unfiled tax returns and unfiled information returns such as offshore asset form. Eligible taxpayers receive full penalty relief, and avoid any possible tax evasion prosecution.

In Belgium, during 2004, the country's legislative house had adopted a law allowing individuals subject to Belgian income tax to regularize the undeclared, or untaxed, assets they held before June 1, 2003.

In 2004, Germany had also granted a tax amnesty in connection with tax evasion.

The largest Islamic country, Indonesia, had netted about $9.61 billion in March 2017.

The country had previously given such incentives in 1964, 1984 and 2008 also.

In 2003, South Africa had enacted the Exchange Control Amnesty and Amendment of Taxation Laws Act, a tax amnesty.

In 2012, the Spanish government had announced a tax evasion amnesty for undeclared assets or those hidden in tax havens. Repatriation was allowed by paying a 10 percent tax, with no criminal penalty.

Italy had first introduced a tax amnesty in 2001. In 2009, the Italian tax amnesty subjected repatriated assets to a flat tax of 5 per cent and succeeded in whitening a huge amount. About 80 billion Euros in assets were declared, which resulted in tax revenues of 4 Billion Euros. The Bank of Italy had estimated that Italian citizens held around 500billion Euros in undeclared funds outside the country.

In 2007, a Russian tax amnesty programme had collected $130 million in the first six months. The Russian programme, however, was not open to anyone previously convicted of tax crimes such as tax evasion.

On September 30, 2010, the government of Greece had granted tax amnesty to millions of Greek citizens by paying just 55 percent of the outstanding debts.

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