In view of the critical economic situation, it was expected that the tax managers would focus on the under-taxed rich and the tax-evaded income and bring them into tax net.

But like the past successive governments, they too failed in taking measures which could bring all categories of taxable income into the ambit of the tax net. So, merely 1-2 per cent of population pays income tax and the tax system is not equitable.

The system increases tax burden on genuine tax payers. The budget has failed to identify the tax evading sectors so as to bring them into tax net. On the contrary, the Finance Act 2008-09 has reverted back to the provision of the section 59D--- Tax on Undisclosed Income in the repealed Income Tax Ordinance 1979—or the amnesty scheme.

The Federal Board of Revenue (FBR) has devised the amnesty scheme on the tax model of Egypt, where it was introduced to legalise the assets on payment of 2.50 or three per cent. Probably the FBR was unaware of similar provision in the repealed Ordinance. The amnesty schemes for black money were announced by the successive governments in 1958, 1969, 1976, 1985, 1997 and in 2000 for payment of tax at reduced rates for legalisation of undisclosed income or assets.

The Income Tax Ordinance 2001 introduced under tax reform rightly did not contain such a provision, but the Act has now inserted section 120A which empowers the FBR to make an amnesty scheme of payment of two per cent investment tax on fair market value of such amount or investment in movable or immovable assets. The scheme covers all such incomes that escaped tax for any year(s); thereby the deemed income u/s 111 will attract tax at lower rate than normal tax rate.

In order to encourage a person to declare undisclosed income/investment, the scheme provides incentive to him; that on payment of investment tax he is entitled to incorporate in his books such undisclosed income/assets. Further he is absolved from payment of all the tax liabilities, charge, levy, penalty or prosecution in respect of such income.

The section 120A inserted through the Act corresponds in ditto of the section 59D of the repealed Ordinance. The scheme is applicable to corporate and non-corporate persons. The declaration of undisclosed income/assets is required to be made on prescribed form along with the proof of payment of tax. The tax authority shall accept the declared version without probing source of such income or investment or, past tax records or business transactions. It has been clarified that the section 68 would not be used for calculation of fair market value of the undisclosed assets, but it would be legalised on the declared value.

Every time, the government’s declaration that such a scheme is final, has so far proved false. This may happen again. Honest taxpayers are justified to question the amnesty scheme which is a premium on non-compliance for tax defaulters and amounts to unfair treatment meted out to them.

An analytical study of the tax evasion is required to find the ways and means to tackle the issue. Amnesty has proved ineffective, time and again. Whether the tax collection machinery is to be blamed for tax evasion or the ordinance does not have adequate provisions to arrest the menace, are questions that need to be answered.

The professionals who deal with the tax statute, know that the Ordinance has fool-proof mode in respect of levy and collection of tax revenue. It imposes additional tax for failure to pay tax, levies penalty for failure to furnish return or non-compliance, provides for prosecutions for non-compliance of statutory obligation, etc. But it has entrusted wide discretionary powers to tax collectors to levy and collect tax. There a remote chance that a person can escape tax laws if these provisions are applied strictly and monitored effectively.

Recent press reports point out weaknesses in the tax system. The Director General of Intelligence and Investigation unearthed mega tax frauds involving illegal refunds by the senior income tax officers who purchased expensive property in the UK through money they earned by issuing illegal orders in refund cases. Similarly, the FBR unearthed a scam in Lahore involving senior tax official who issued bogus refunds during 2003-07 involving Rs103 million in 39 cases on forged documents. There are cases in which tax records are tampered; the rules and regulation of the ordinance are grossly violated by those entrusted with responsibility for ensuring tax compliance.

But the absence of provision for accountability for tax authorities in the ordinance in case of their non-compliance and leniency of the FBR to take disciplinary action against corrupt tax officials promotes tax default culture. It was reported recently that the FBR had not taken any action against 68 corrupt tax officials who were named by the Directorate General of Intelligence and Investigation. Honest taxpayers are thus paying the price of the default culture.

Who are involved in black money scandal? This class cannot be specified. Mostly, they may be those who enjoy exemptions from tax of certain income such as agriculture income, capital gains tax on listed shares etc. and the borrowers whose loans are written off. These classes prosper, ignoring their obligations to the country. The tax free income so generated is diverted to speculative business including real estate which again paves way to illegal creation of money.

The government should look into the large amount of undocumented money with a view to resolve the problem effectively instead of offering immunity from tax. The amnesty scheme introduced in the tax statute virtually has given two options, higher tax rate for those who pay due tax and lower tax rate for tax evaders. It is a question mark for the honest taxpayers that why do they also not opt for lower rate?