The tax net

The tax amnesty scheme included by the government in the last budget included a controversial plan to allow those who do not file income tax returns to declare untaxed property and pay a nominal fee. As with all previous tax amnesty schemes, the worry was that few people would take advantage of the scheme and that the government would not have the will to pursue tax dodgers once the amnesty deadline of July 1 expired. It may still be premature to assume this time will be any different but at least we are seeing the first signs that the government is prepared to take action. On Monday, the Federal Board of Revenue said it had identified at least 50,000 likely tax scofflaws who bought and sold multiple commercial and residential properties but had either not filed their returns or omitted it from their tax forms. Identifying those who use real estate to whiten black money or to hide their assets is not particularly difficult. The FBR has a good idea of the market value of land and a paper trail usually exists to establish ownership. Any discrepancies between the value of a property and the tax returns of its owners is relatively easy to establish. Still, the FBR gets credit for starting the process of initiating cases against those who do not declare their properties and pay the required taxes.

The next stage will prove to be more difficult. The FBR will have to pursue cases against all of those who do not avail the amnesty. Many of these 50,000 people – who themselves are only the tip of the tax-dodging iceberg – will be among the wealthiest and most influential citizens in the country. Taking all of them will require a will neither this nor any other government has shown. It will face pressure from well-connected real-estate interests and a bureaucracy that has often worked in tandem with them. Should its efforts stall, the effects will be disastrous. The most recent budget has reduced taxes to such an extent that broadening the tax base is more important than ever. We cannot bridge our fiscal deficit with foreign aid in perpetuity. Government action should also determine with some finality if tax amnesty schemes have any chance of working. Should this one, like all those preceded it, end in failure, the idea that tax dodgers will respond to government incentives absent enforcement needs to be done away with once and for all.