Why another tax amnesty?

Yet another amnesty scheme mocks honest taxpayers

Why another tax amnesty?

The Federal Board of Revenue (FBR) has once again admitted its failure in dealing with the powerful class of traders in forcing them to file tax returns as other persons do. The government of the day, as expected, is more than keen to protect the mighty tax delinquents and introducing yet another amnesty scheme to decriminalise the serious cognizable offence of tax evasion.

Reportedly, the scheme will be announced by the prime minister personally. It is being introduced as Money Bill, bypassing the Senate. It is strange that the government instead of passing asset-seizure legislature to confiscate untaxed assets has preferred yet another amnesty scheme (Voluntary Tax Compliance Scheme) and that too at a rate which is obnoxiously low. On December 28, 2015, the finance minister directed the FBR to "further improve the draft Voluntary Tax Compliance Scheme so as to attract maximum number of new taxpayers and achieve the aim of broadening the tax base."

According to the press reports, the following matters were concurred with the traders:

The scheme will allow the whitening of undeclared capital/business assets up to Rs50 million. The traders availing the scheme will be exempted from audit for three years and no question will be asked about their sources of income. They will have to pay just one per cent as tax on their declared business capital in the first year.

For filers of income tax returns, there will be three different slabs enabling them to whiten their business capital without any monetary limitation. The rate of 0.1 per cent on declared turnover in excess of Rs250 million and 0.15 per cent in excess of Rs100 million and up to Rs250 million. Turnover between Rs50 million and Rs100 million will be charged 0.2 per cent.

The scheme will be in force from January 1, 2016 for a period of 1 month without any extension.

While the traders would be able to whiten undeclared assets by paying nominal tax, the government has shown no relaxation on withdrawing withholding tax in the case of non-filers on banking transactions under section 236P of the Income Tax Ordinance, 2001. The FBR is chronically hooked on easy-collection of taxes -- there are as many as 58 withholding provisions and their contribution in overall income tax collection is as high as 64 per cent.

These transactional taxes have multiple effects. For example, a salaried person, after getting net salary paying the tax due, is forced to further lose money while paying his mobile bills as well as those of dependents and even on educational expenses of his children. Such cruelty is unprecedented elsewhere. The same is the case with even traders, who pay advance tax on electricity bills and no refund or adjustment can be claimed if tax withheld is up to Rs36,000.

The Transparency International Pakistan (TIP), as in the past, has strongly protested against the amnesty scheme. It has urged the prime minister not to approve any tax amnesty scheme as it will amount to "financial NRO (National Reconciliation Ordinance) for tax evaders and big tax dodgers."

The people hooked on ill-gotten wealth know that after every two or three years, there would be an amnesty scheme giving them a chance to get their money whitened.

The worthy finance minister and the FBR chairman have yet not informed the public how much this scheme will attract in terms of taxes and how many traders are expected to file tax returns. For many years, the FBR has been claiming that it possesses "wealth" of information about persons enjoying lavish living standards but chose not to get enrolled as taxpayers. If the FBR’s claim is true, then why this need to offer an amnesty scheme? It should initiate legal proceedings against those who do not pay their taxes as per law. Facilitating them by legalising their hidden and untaxed wealth is a crime and it violates the fundamental rights of citizens, especially those who have been paying their taxes honestly. One wonders if the apex court will take suo moto action as being the custodian of the Constitution and citizens’ rights.

Though the presence of enormous untaxed money is admitted by all, the actors and factors behind its generation and accumulation are not unveiled, what to speak of being punished under the existing laws. On the contrary they get amnesties and concessions at much lower rates scoffing at those who were paying at an exorbitant rate of 35 per cent. This baffles the minds of honest taxpayers and citizens. They ask, whether it is on account of lack of political will, or rampant corruption, or collusion of tax dodgers and the tax administrators at defrauding the revenue, or the political system or the ineffectiveness and defectiveness of laws, or the pervasive stubborn indifference of the citizens who play truant?

The people hooked on ill-gotten wealth/income for the last many years know for certain that after every two or three years, there would be an amnesty scheme giving them a chance to get their income/assets whitened by paying far less an amount than what they would have been required to pay under the regular income tax/wealth tax regime. It is a tragic situation where the entire State apparatus is subservient to those who blatantly manage to hide their incomes and wealth. It is an ugly joke with those who are paying their taxes honestly at much higher rates than those offered to tax evaders in amnesty.

The ugliest face of untaxed money in Pakistan emerges in the corridors of power, political as well as administrative. Since rulers do not pay taxes and prefer to keep business empires abroad how can they be sincere in enforcing tax laws? Parliament also keeps mum as most of the members have laughable tax declarations. Judges of higher judiciary have also shown total apathy when matter comes to taxation for all as they hide behind special laws of extending protection to tax evaders.

The first and foremost objection to any tax amnesty scheme is that it betrays the honest taxpayer and the nation as a whole. The message sent out by repeated tax amnesty schemes is that taxes are regularly paid by only the honest taxpayers, whereas the "wise" wait to avail benefits of such undesirable schemes.

Legislation alone cannot prevent the commission of crimes nor is it possible for a taxpayer, whose position is that of a lamb before a corrupt wolf-like official, to fight against corruption. It is the collective and forceful efforts of the government, taxpayers and tax practitioners that can do a lot for preventing corruption. Apart from direct monetary costs of corruption, other significant costs, such as loss of government credibility, spread of injustice, distortions in resource allocations and loss of foreign and local investments, are destroying the very fibre of civil society in Pakistan.

According to figures released by independent quarters, the parallel economy is growing at an alarming rate of 22 per cent per annum. Every fifth rupee transacted in Pakistan is black. This is not the final count. We have yet not accounted for kickbacks in arms deals, foreign trade, smuggling (e.g. huge tax evasion in the name of Afghan Transit Trade) and foreign exchange racketeering, apart from narcotic trade and other criminal traffic.

One of the worst consequences of black money and tax evasion is their pernicious effect on the general moral fabric of society. They put integrity at a discount and place a premium on vulgar and ostentatious display of wealth. This shatters the faith of the common man in the dignity of honest labour and virtuous living. The best way to deal with tax evasion is not yet another amnesty scheme but asset-seizure legislation to confiscate all un-taxed assets at home and having provisions to seek help of international comity and organisation to bring back looted and/or untaxed money back.

Why another tax amnesty?