IT is now the PTI-government’s turn to announce an amnesty scheme. They’re offering non-filers of tax returns an opportunity to whiten their undeclared assets at home and abroad and get into the tax net.

Facing revenue shortfalls, successive governments have used such schemes as a common tool for fundraising — making a mockery of regular taxpayers and return filers. Pakistan is one of the leaders in offering such schemes – a total of 10 so far – even though many other countries like the US, Australia, Belgium, Canada, Germany, Greece, Indonesia, Italy, Malaysia, Portugal, Russia, South Africa and Spain have used similar tools in the past.

The PML-N, in its last tenure, announced four such schemes to select groups. Starting with a 2014 investment scheme by then prime minister Nawaz Sharif, followed by two more schemes offered to traders and real estate developers, with not very encouraging results.

This was because those choosing not to declare their liquid, movable and immovable assets remained unchallenged and the tax machinery either failed or did not attempt to trace them.

It is surprising for the PTI to succumb to such demands because it has been criticising such schemes passionately when in opposition

The last amnesty offered by the PML-N in April 2018, however, fetched around Rs121 billion and brought about 80,000 people into the tax net.

A year later, the Federal Board of Revenue (FBR) has again missed its nine-month revenue target by a massive Rs318bn — perhaps the highest in history. It has been able to convince Prime Minister Imran Khan and Finance Minister Asad Umar to bring about a new scheme to earn some quick bucks until the government comes under the fiscal discipline of the International Monetary Fund (IMF).

It is surprising though for the PTI to succumb to such demands because it has been criticising such schemes passionately when in opposition.

Rejecting an amnesty scheme offered by then prime minister Shahid Khaqan Abbasi in April last year, PTI chief Imran Khan had said: “Such schemes are created to benefit the corrupt. Only corrupt elements become the ultimate beneficiaries. This is to fool the honest people of the country and encourage corrupt elements to plunder and amass wealth, only to whitewash it later on.”

In fact, he had gone to the extent of pledging not only to reverse the scheme but also to investigate those benefiting from it, if he was voted to power. He had warned tax evaders not to take advantage of the scheme and come into the tax net; a claim that was considered to be a setback to the success of the scheme.

Finance Minister Asad Umar had also been very critical of amnesty schemes. “It is a joke with the nation. Those who plunder the nation’s wealth are being given relief. The only objective is to whiten the stolen money,” he said last year. He added that tax policies were being formed by those people whose relatives make money through corruption.

Rejecting yet another amnesty scheme in January 2016, Mr Umar, as member of the national assembly’s standing committee on finance, had said the tax system was faulty which compelled even the honest to avoid the tax net. “Until the government addresses the issues of smuggling and under-reporting, people will continue accumulating assets, and the government will keep on offering one amnesty scheme after another,” he had said.

The government now thinks that it has been able to significantly suffocate non-filers and tax evaders who would like to benefit from this ‘last opportunity’. The eleventh tax amnesty will be formally offered before the upcoming budget.

According to the Minister of State for Revenue Hammad Azhar, it makes a lot of difference to the scheme’s success if the amnesty is offered in the early part of a political government’s tenure. The government can then chase tax evaders over the remaining part of its rule unlike the PML-N that announced the amnesty at the fag end of its tenure.

Insiders suggest the proposed scheme was taken in hand after the government’s January 2019 (second supplementary budget) plan to recover about Rs200bn Gas Infrastructure Development Cess arrears failed to take off due to unresolved litigation, and the revenue shortfall continued to expand.

According to the finance minister individuals, including those belonging to the business community, were of the view that the campaign against tax evaders had created a lot of fear that the government was serious in its efforts. The believed that if the purpose of the government was to collect more taxes, these individuals should be given an opportunity to come into the tax net.

“There can be a one time opportunity for asset declaration that we will announce before the (coming) budget,” Mr Umar said. He was confident that the scheme would be compliant with requirements of the Financial Action Task Force that had criticised the April 2018 scheme. The minister believed the Fund would not have any objections over the amnesty schemes as many such schemes had also been given in the past.

International lending agencies, particularly the IMF and the World Bank, have generally only been opposed to amnesty schemes as far as statements are concerned. Independent economists, however, consider them unjust and demoralising for existing tax payers and return filers, especially since these schemes have come within very short intervals.

Published in Dawn, The Business and Finance Weekly, April 8th, 2019



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