The amnesty mirage

Since 1947, successive governments in the country have offered around 16 tax amnesty schemes of which three were launched by the PTI-led government alone every year after assuming office. It is a generally accepted rule for equitable taxation that an amnesty is a form of distortion that incentivises tax evaders and discourages honest taxpayers. The IMF, World Bank, and all other multilateral institutions never lent such schemes any support but Pakistan is such a unique jurisdiction that the ruling elites working the power corridors never run short of elaborate pretexts to justify these tax breaks. Every ruler, irrespective of the political divide, has always declared that theirs will be the last tax amnesty while claiming the amnesty would help with the documentation of the black economy. Needless to say, that has not happened.

Now, FBR Chairman Dr Mohammad Ashfaque Ahmed has disclosed that around Rs960 billion was whitened through the last tax amnesty and was not invested back in the real productive sectors of the economy, which was what the whole scheme was supposed to have been about. The real dilemma faced by Pakistan’s economy was its persistent failure to bring the undocumented economy into the system as the size of the parallel economy – or the black economy – was estimated to be close to 100 percent of the total magnitude of the formal economy. Although Pakistan's tax authorities publicly opposed the tax amnesty scheme, they were left with no option other than bowing to their political lords. The last Tax Reform Commission (TRC) constituted during the PML-N-led regime had recommended that all tax amnesty schemes be done away with since they end up encouraging tax evasion and illegitimate avoidance. Likewise, all fixed tax regimes should be abolished as these are against the spirit of Value Added Tax (VAT) law and justice. All such sectors/goods should be brought under the uniform tax regime. Similarly, deemed value addition mechanism for commercial importers should also be abolished was also one of the recommendations.

It is unfortunate that after every few years, whichever party is ruling the country announces a tax amnesty scheme – seemingly just to prove that honest taxpayers are plain foolish for paying their taxes by the book. There’s an almost bulletproof honour among these elite tax evaders, who deny the country billions in revenues. While these comrades-in-corruption thrive, the country barely survives. Be it political or dictatorial, almost every regime fell flat on its face while trying to tackle our undocumented economy – undoubtedly for lack of political will. This is why governments never bothered to grant autonomy to the FBR and continued trying to stem the bleeding from the jugular with band-aid solutions. Whitened money cannot be diverted into real productive sectors without undertaking real structural reforms and reducing the cost of doing business. With the existing structure in place, it’s hard to earn in the real sector, but a lot easier to rake in lofty profits in real estate. To change this for good will require clearing bureaucratic hurdles, simplifying procedures, and rationalising tax rates.