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Null and void: Legalising smuggled vehicles

June 21, 2013

BY nullifying an amnesty scheme initiated by the last government granting duty and tax concessions for smuggled vehicles, the Islamabad High Court has sent the right message. As Justice Shoukat Aziz Siddiqui noted, the FBR’s amnesty discriminated against citizens who lawfully purchase vehicles and pay their requisite state dues. By declaring such amnesties and schemes, the state seems to imply that it is okay to dodge taxes and the formal economy as long as one pays a lower cost at a later date. Similar schemes have been announced in the past, for example the amnesty declared last year under which no questions would be asked regarding the source of funds invested in the Karachi Stock Exchange. These schemes appear to encourage illegality in the financial sphere, by promising to turn ‘black’ money into ‘white’. Those who honestly pay their taxes are given the impression that it doesn’t pay to follow the rules and that there are ways to break the law and still work the system. Considering the fact that Pakistan’s tax-to-GDP ratio is abysmal, such amnesties only encourage the rampant culture of tax evasion. And while efforts are being made to document the informal economy, which is almost as big as the formal one, official moves that encourage smuggling and illegal imports make no sense. Simply put, such moves are not sustainable as they work only to strengthen the status quo, where tax dodging is tolerated, and offer very short-term advantages to the state.

Apart from questions of financial ethics and loss to the exchequer, the local automobile industry is also affected and jobs are lost when vehicles are smuggled and later legalised. As for the FBR’s claims that billions of rupees were collected when over 50,000 vehicles were regularised under the amnesty, it would be fair to ask how much revenue the state could have collected had the vehicles been imported legally. The court’s decision should prompt the tax authorities to avoid coming up with such dubious schemes in the future.