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May 16, 2019

Amnesty again


May 16, 2019

The history of tax amnesty schemes in Pakistan is not a happy one, and this is what the PTI too used to say when it was in opposition. But the party changed its strategy very quickly once it came into power. Whether we can believe the government's claim that this will be the last amnesty scheme or not is a moot point; the fact is that the government on Tuesday decided to ignore calls to improve tax collection instead of announcing another tax amnesty scheme. On paper, the new tax amnesty scheme should work. The scheme gives a period of 45 days for the declaration of any undeclared assets, expenditures and sales. The scheme does not give a provision for whitening undeclared domestic and foreign incomes. The government is also giving a one-year window for tax payments for those who declare their assets by June 30. Domestic and foreign assets can be whitened at a rate of four percent – while any whitened cash assets will have to be kept in Pakistani banks. Those who want to keep their whitened money abroad will have to pay a rate of six percent. For whitening domestic real estate, the government will charge a rate of 1.5 percent of the FBR rate, or 150 percent of the DC rate.

What is worrying is that the government has made no revenue projection for the amnesty scheme. It also appears useless to continue to point out that such schemes are effectively ‘get out of jail’ cards for those who have avoided paying taxes for decades. In principle, such schemes should not be offered. Instead, the government should have focused on strengthening the tax apparatus. Finance Adviser Hafeez Sheikh has claimed that the scheme was not designed to generate revenue, but to document the economy as well as bring deal assets into the economy. Sheikh says that that the proposal is meant not to intimidate people, but encourage them to participate in the legal economy. However, the government has also announced that if anyone possesses any benami assets, it would result in the seizure of bank accounts and other assets as well as a seven-year jail term. The issue itself is not that the tax amnesty scheme will not manage to generate additional revenue, it is that the scheme will leave the overall tax apparatus in the country in a mess. The government cannot keep prioritizing short-term revenue objectives over the more important task of improving the tax apparatus.

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