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Tax collection drive

June 20, 2019

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FROM the looks of it, a very vigorous tax recovery drive is being prepared and aggressive powers to search, seize and scrutinise assets and all places where they may be hidden are in the process of being given to the Federal Board of Revenue. Banks have been asked for details of all accounts that have more than Rs5m, data which will now be cross-checked with the FBR database, wealth declarations as well as travel history and utility bill payments made by the people in question. Separately, the trader community has been told to come and get themselves registered by paying a fixed amount in tax depending on the size of their premises, and to collect a token which is to be displayed on their premises to avoid visits from the tax authorities. Meanwhile, high-net-worth individuals have been warned that the deadline for the tax amnesty scheme will not be extended, and that those who are found in possession of undeclared assets afterwards can face confiscation and imprisonment. The minister of state for revenue said during his budget speech that failure to file tax returns is now going to be a prosecutable offence, again with a possible prison term. Utility bill connections are being scrutinised, data gathered, laws to move money out of the country are being tightened, and come July 1, we could see the launch of a very vigorous tax collection drive.

It would be good to see a parallel move to broaden the tax base as well. This is not the first time we have seen such muscular efforts to bring in revenue and net more taxpayers; past experience teaches us that such drives usually run aground in less than one year. The first year of the Musharraf regime, from 2000 till 2001, is a case in point. Back then, of course, there was also a parallel loan recovery drive under way since most banks were public-sector entities and weighed down by non-performing loans. That drive ended fairly quickly since it damaged business confidence and unleashed an uncouth and untrained tax bureaucracy, with virtually unlimited powers, upon the taxpaying population. We can only hope that what is about to happen from July 1 onwards will not be a repeat of history.

The broadening of the tax base is serious business in this country, but it will clearly take more than raw muscle power to make it happen. Thus far the government’s amnesty scheme has drawn a poor response, ie people with large undeclared wealth seem to be calling the government’s bluff. Unless there is a veritable flood of declarants in the seven working days left till the deadline, a flaccid amnesty scheme will mean the whole effort is off to a bad start. Drawing lines in the sand is rarely effective in public policy.

Published in Dawn, June 20th, 2019