THE Federal Board of Revenue (FBR) has prepared an amnesty package to provide the elite with a means to legitimise any offshore and onshore undeclared assets they may have at the meagre rate of two to four per cent.
This move coincides with a new global anti-tax evasion scheme which is to become operational under a multilateral tax convention on the avoidance of double taxation.
The latest amnesty under consideration — to be offered ahead of the next general elections — will become the fourth in a series the incumbent government has offered in its four and a half years. The scheme is being developed on the pattern of the Indonesian tax amnesty model.
A senior FBR official confirmed that a summary was submitted to the prime minister for approval. Two major deviations from past schemes are proposed in the new amnesty package. The names of individuals who will whiten their money will not be disclosed while these people will also be given complete immunity from other probing authorities, such as the Federal Investigation Agency and the National Accountability Bureau.
The officer further confirmed that top businessmen also approached the FBR for including a provision for blanket exemptions. “We have included all concerns of the business community in the draft,” the officer said.
Under the proposed scheme, different tax rates will be offered depending on the period of asset declaration. The lowest rate will be offered to those who declare their moveable and immoveable assets in the first month, with higher rates in the last months of the scheme.
It is not yet clear whether the scheme is linked with repatriation of wealth. If it is not, then it is of no benefit to the economy
Moreover, the rates will also vary in cases of repatriation of assets to Pakistan and in cases of non-repatriation of foreign assets.
However, it is not yet clear whether the FBR will link the scheme with the repatriation of wealth. If it does not, then the amnesty provides no benefit to the economy as it will only offer a breathing space to people who opt to declare their foreign assets in order to avoid a crackdown from foreign host countries’ tax departments.
The FBR estimates it will be able to raise $3 billion to $4 billion from the amnesty scheme, a claim which is not substantiated because the past scheme shows poor compliance in terms of documentation and raising tax on untaxed money.
Within the FBR there is a strong opposition on the proposed amnesty package. The global crackdown to expose tax evaders under the Organisation for Economic Cooperation and Development (OECD) convention will start sharing information among 104 members from July this year.
A tax official, who was not willing to be named, told Dawn that there is a lobby within the government which wants a lenient tax amnesty to benefit the ultra-rich ahead of the elections. According to him, in the developed world the penalty is usually only partially waived and the original tax amount is not compromised. For example, an amnesty scheme in the US only offers to waive off 50pc of the penalty.
But in the case of the proposed scheme, the percentage for whitening the untaxed money is very low. It is suggested that it should be over 20pc of the amount that was remitted outside.
Questions are being raised whether this latest government move will help in documenting the black economy. The performance and outcome of the past schemes do not offer hope as they are designed to benefit a few. No outcome is expected until the scheme is followed by strong measures to ensure deterrence.
Ahead of the scheme, tax officials believe the government should introduce some amendments to the income tax ordinance. These officials who partially support the scheme suggest that the concept of year of discovery in the income tax law should be revived.
They further suggest that the tax statutory period of five years for probing past cases should be abolished and the penalty of non-disclosure after the amnesty is announced be raised to 300pc along with five years of imprisonment. In cases of outflows, the disclosure of source should be made mandatory.
Otherwise, the fate of this amnesty will be no different from that of the past ones. In the 1958 amnesty scheme, an amount of Rs1.12bn was recovered from undeclared assets, followed by Rs920m in 1968, Rs1.5bn in 1976, Rs10bn in 2000 and Rs3.16bn in 2008.
There are several other schemes which were also offered in 1985, 1991, 1998, 2012 and 2016. However, the FBR did not disclose their revenue recovery or beneficiaries.
A former member of the tax reform commission said that amnesty schemes penalise honest taxpayers and that the FBR prefers shortcuts while ignoring the negative impact of these schemes on the tax culture in the country.
Over the years tax compliance has deteriorated. It fell to 21pc in tax year 2017 from as high as 65pc in 2010-11.
There is a permanent window for money whitening under section 111 (4) of the income tax ordinance. Reports also suggest that untaxed money is being rerouted through remittances to whiten through a nominal fee.
Tax experts believe that in the presence of this window there is no need for a special amnesty scheme, even one which is politically oriented.
Published in Dawn, The Business and Finance Weekly, January 22nd,2018