Questions of amnesty

Why does one government after another continue to offer tax amnesty schemes? Questions were asked when the former PML-N government announced a new tax amnesty scheme in the last month of its tenure. Being the fourth tax amnesty scheme in its five-year term, most analysts correctly predicted that it would not work as was envisaged by its creators. Tax amnesty schemes continue to reinforce the impression that the government is giving a free hand to tax evaders. The current tax amnesty scheme was lauded by government officials as another step at putting an end to tax evasion and bringing billions in laundered money back to Pakistan. The reality is much more sombre. Only a few hundred people have filed returns under the said scheme, with only around Rs350 million raised from the declarations in the last two months. With the scheme set to run till June 30, it is safe to say that such a policy must never be repeated. Tax evasion must be treated as a crime – and those targeted must be at the very top of the economic and political chain of command in the country. This is the only effective way to curb the menace of tax evasion in the country.

Existing policies continue to base themselves on the belief that income tax will not be paid by the bulk of the population. Officials remain in denial, claiming that the failure of the scheme is due to an ongoing case in the Supreme Court. The SC, however, has clarified that it will not intervene and any failure of the amnesty scheme will be the government’s responsibility. The other logic presented is that there are doubts over whether it would be continued by the next government. But these are mere excuses. The last three amnesty schemes in the just-ended regime met the same fate. But there is a much longer history to this. Amnesty schemes announced in 1958, 1968, 1976, 2000 and 2008 were all doomed to fail. They seemed to merely give the appearance that the federal government was doing something about tax avoidance. But in reality such schemes have hurt more than helped the cause of tax recovery. They have served as confirmations to tax avoiders that the government is committed to a volunteerist idea of tax collection, and retains no capacity to track their assets and enforce its tax laws. This diagnosis is wrong. Only a strong hand will work. This particular scheme seems to have been doomed to failure by a lack of investment in it by FBR officials – but this seems to be the case in terms of their investment in enforcing tax law. The stick needs to be bigger than the carrot on offer for tax evaders to come clean.