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July 23, 2018

Behind the amnesty


July 23, 2018

The extension of the deadline of the tax amnesty scheme has not borne the results it was expected to. The FBR is said to have taken the advice of accounting firms to extend the deadline, but the results have not matched the early optimism. Despite this, though, the amnesty scheme can be considered a success. Around 55,000 people have filed returns to declare Rs577 billion worth of foreign assets and Rs1,192billion in domestic assets under the scheme. Almost Rs97 billion in taxes have been paid into the national coffers. The numbers also confirm that the domestic tax amnesty scheme has received a better response that the offshore tax amnesty scheme. This is contrary to expectations. The prediction that billions of dollars will be repatriated home has not come true. Only around $40 million has been brought back to Pakistan. The government had hoped to use the tightening financial environment under the Organization for Economic Cooperation and Development (OECD) to force Pakistanis to bring back anywhere between $3 billion and $5 billion in foreign assets. Pakistanis are estimated to own almost $150 billion in undeclared foreign assets. If the government and tax authorities hope that these assets return to the country, they will now have to wield the stick they had promised but never delivered. If this is indeed the ‘last opportunity’ to declare one’s assets, then those who have not availed it should face the consequences. 

The real problem has always been the lack of seriousness at the end of our tax authorities on implementing Pakistan’s tax regulations. The threat of an FBR crackdown has never materialised for Pakistan’s rich and powerful. This means that there is little real incentive to declare one’s black assets, unless it comes out of some kind of voluntary gesture or a specific financial need. With the FBR set to receive information on the offshore accounts of Pakistani residents after September this year, tax authorities will run out of another excuse for why their performance has remained so poor. Similarly, amendments to the Income Tax Ordinance have removed the statute of limitations, which had previously limited financial investigations into assets that went back 10 years.

The greater freedom is what the FBR will now have to grapple with. FBR chairperson Rukhsana Yasmeen has promised that the tax collector is preparing a detailed plan on how it plans to expand the country’s narrow tax base. The bigger pledge is that the FBR is not advocating another extension to the tax amnesty scheme. This is the right decision. Despite much opposition, the federal government had offered another ‘last chance’ to Pakistanis who have amassed wealth by avoiding tax. There is now a need to end the culture of amnesty schemes. It only gives more confidence to those who evade taxes that the promised crackdown will never happen. The amnesty scheme has shown that offering the right incentives might work to a limited degree, but this should not be enough to justify announcing more tax amnesties. There have been enough chances available to those with illegal wealth. The FBR now will need to show that it will prosecute those who still hide their wealth. 

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