WITH the aim of promoting tax culture in the country, the government has resurrected a law drafted in 2012 to encourage citizens to expose tax evaders and induce people who have stashed away their wealth offshore to bring home their money.
By extending the legal cover to whistleblowers through the Finance Act 2015, the government has opened the way for turning the 2012 draft law into a more effective and comprehensive one. But corruption is not covered by the legislation.
The Khyber Pakhtunkhwa government has enacted a whistleblower law along with two other laws as part of a detailed anti-corruption strategy. The two other laws are the freedom of information act and the right to public service act, to check the menace of corruption.
FBR Chairman Tariq Bajwa believes that the law will help officials get hold of tax evaders and curb the black economy
A whistleblower, confined to tax-related issues, is defined as a person who reports concealment or evasion of taxes and tax fraud, leading to detection or collection of taxes, fraud, corruption or misconduct, to the competent authority having power to take action against the person or a tax authority committing fraud, corruption, misconduct, or involved in concealment or evasion of taxes.
The whistleblower can report the misdeeds of tax officials as well and may be rewarded by the Federal Board of Revenue (FBR) for providing credible information. However, no reward will be offered to whistleblowers if the information provided is of no value; the FBR already has the information; the information is available in public records; or if no taxes are collected from the information provided from which the FBR can pay the reward.
FBR Chairman Tariq Bajwa believes that the law will help officials get hold of tax evaders and curb the black economy. He said such a law is needed to recover the black money by not only protecting the identity of the person providing the information, but also giving him a specified share of the non-taxed money that is ultimately recovered.
The law also provides adequate safeguards against victimisation of the person making such complaints and for matters connected especially in the case of tax officials. The protection of the informer may be a serious problem for the tax department. Experts believe the only way to provide protection to the informers is to give them code numbers instead of using their original names. This is one way of protecting the identity of the whistleblowers.
However, no one can rule out the possibility that the tax officials may also share the relevant information with someone on the condition that they share the reward money. It will be a big challenge for policymakers to address such issues and minimise the possibility of the misuse of the programme.
The FBR’s tax laws have provisions to give cash award to an informer who could lead to the detection of wrongful declaration of the value of goods, confiscation of smuggled goods, tax evasion, and detection of revenue through audits in all federal taxes — customs, sales tax, federal excise duty and income tax.
However, these provisions have not been given proper legal cover and protection under existing tax laws. It has been observed that the provisions for cash awards were mostly misused for getting awards in routine cases subject to audit.
The National Accountability Bureau has estimated that Pakistanis have around $250bn worth of assets in foreign countries. Other estimates put the amount at as high as $500bn.
To recover unpaid taxes on cash/assets in offshore banks, the tax officials also need to be well-versed with international laws and have a sound strategy to proceed in the matter.
Critics say it is the responsibility of the tax department to hunt down such people. And Nadra has already identified over 2m rich people with addresses who do not have national tax numbers. Nearly 3m people posses NTNs, but less than 0.9m of them filed income tax returns last year. So, the FBR has sufficient information about tax evaders but it does nothing about them.
Similarly, the number of sales tax registrants has stagnated at around 150,000 for the past several years. Only half of registered taxpayers file returns with the sales tax department. This is another area where the tax officials have sufficient information but lack the commitment to bring tax evaders into the net.
The implementation of the whistleblower-protection legislation may be supported by raising awareness, communication, training and periodic evaluation of the effectiveness of the protection framework. While this is a step in the right direction, the government will have to demonstrate its commitment and resolve to make the initiative successful.
Published in Dawn, Economic & Business, July 6th, 2015
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