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Tax amnesty schemes in Pakistan and world over

The amnesty scheme also has the facility for citizens to whiten their benami accounts and properties.

By Sabir Shah
May 16, 2019

LAHORE: Just a couple of days after Premier Imran Khan-led government had succeeded in reaching an accord with the International Monetary Fund to seek a $6 billion bailout in a bid to implement its structural reform agenda over a period of around 40 months, a “generous” tax amnesty scheme, called the Asset Declaration Scheme, has now been approved by the Federal cabinet, though public office holders would not be allowed to benefit from this privilege, which is basically a premium for dishonesty.

Under this scheme, assets within the country and abroad (except for real estate) can be whitened after paying a charge of 4 per cent only, contrary to a 45 per cent levy in India.

For people wanting to keep their whitened money abroad, a rate of six per cent would be charged. For the declaration of real estate, its value would be considered 1.5 times more than the Federal Board of Revenue-assigned value to bring it at par with the market rate.

The amnesty scheme also has the facility for citizens to whiten their benami accounts and properties. It is a pity that instead of enacting concrete laws to bring back looted money from Swiss banks and other tax havens, the ruling Pakistan Tehreek-e-Insaaf government has thus toed the line of all its predecessors who had come up with such initiatives, but to no avail, as all such moves have historically failed in this part of the world.

A brief peek into the past money-whitening schemes in Pakistan: Pakistan had offered its first tax amnesty scheme in 1958 during the regime of Ayub Khan, meaning thereby that not only have black economy and tax evasion been haunting the Pakistani economy for well over six decades, loot and plunder have also continued unabated since then.

This 1958 initiative had brought approximately 71,000 declarations and as many as 266,183 taxpayers had entered the fold, contributing a total of Rs1.12 billion to the kitty. Despite this, tax collection remained at less than 10 percent of the total GDP in 1958-59.

Over Rs142 million was collected through the 1997 tax amnesty scheme.

The year 2000 amnesty scheme was launched under the General Musharraf-led regime.

During this scheme, some incumbent ministers had declared their assets.

Approximately 79,200 declarations were filed, bringing in Rs 10 billion to the exchequer.

In 2001, a tax amnesty scheme called 'Investment Tax on Income,' inserted vide section 120A of the Income Tax Ordinance, had given a similar facility to whiten untaxed money and assets by paying just 2 per cent. The effort proved futile as only Rs 2.5 billion was received.

During 2008, the-then Pakistan People’s Party regime had solemnly pledged before the Parliament that after 'Tax Investment Scheme of 2008,' it would not introduce any more amnesty schemes---which was a lollypop for critics.

However, the PPP government had gone on to offer the same to stock exchange investors in April 2012 and all kinds of concessions were dished out to tax evaders during May and June 2012 to achieve the time's budget target of Rs1,952 billion.

The target was missed by over Rs70 billion though.

In 2013, the Pakistan Muslim League-Nawaz government had announced a money-whitening scheme, dealing only with assets held within the country.

This scheme was primarily intended for owners of imported cars who had brought them into the country without paying due taxes.

The 2016 scheme saw just 10,000 declarations coming forth, contributing a mere Rs0.85 billion.

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.

In April 2018, the-then Pakistani Prime Minister, Shahid Khaqan Abbasi, had given the tax dodgers a chance to come clean through what can be dubbed an 'extremely generous' amnesty scheme for undeclared local and foreign assets.

By June 30, 2018, nearly 5,000 people in Pakistan had filed returns declaring their foreign assets and deposited approximately Rs80 billion in taxes.

The scheme was launched by the PML (N) government and passed through parliament in a bid to boost the national foreign exchange reserves, which were then hovering around the USD 10 billion mark, sufficient to finance barely two months of imports!

As far as the 2018 tax amnesty scheme was concerned, research conducted by the "Jang Group and Geo Television Network" shows that hints about this initiative 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).

Nawaz Sharif had assured a galaxy of industrial magnates in Karachi that he would talk to Ishaq Dar, his Minister for Finance, Revenue and Privatization, 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 of Pakistan.

Heading a country with just 1.2 million filers, including only 0.7 million people who are actually paying taxes, Premier Shahid Khaqan Abbasi had basically extended the proverbial 'olive branch' to Pakistani citizens who had failed to report their undeclared assets to the tax authorities.

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

Here follow some international 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."

It is imperative to note that in 1997, after the Indian Voluntary Disclosure Scheme was announced, the civil society had strongly objected to the same and represented to the Government to drop the proposal. However, the scheme was implemented.

In India more than 15 disclosure schemes have been introduced till date.

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 $343 billion 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.

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.

In 2014, the Australian Tax Office (ATO) tax amnesty had netted billions, but probes against rich with secret Swiss accounts were not shelved.

On December 9, 2014, the “Sydney Morning Herald” had written: “Around 1750 Australians have declared a total of $240 million in income and $1.7 billion in assets under the amnesty and another 800 expected to make voluntary disclosures. The biggest individual disclosure by a taxpayer was $30 million in income $120 million in assets that had been held in Liechtenstein and Switzerland. The smallest was a disclosure of $10,000. Only 130 individuals made declarations about property. The vast majority of voluntary disclosures were related to income and shares.”

The prestigious Australian media house had maintained: “In a warning to anyone feeling reluctant to come forward, ATO said it has an "informer" who has already handed them a list of 122 Australians with Swiss bank accounts. Switzerland proved to be the most popular destination for undeclared wealth (585 individual disclosures were made about money and assets hidden there), followed by the UK (299 disclosures), Israel (231 disclosures), Singapore (123 disclosures), Hong Kong (115 disclosures) and Liechtenstein (43 disclosures).”