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Tax amnesty

October 03, 2012


THE confusion of those absorbing Finance Minister Hafeez Sheikh’s comments on the planned tax amnesty for the 3.8 million potential tax dodgers with undeclared assets here and abroad is perfectly understandable. He is being ambiguous, perhaps intentionally. He says such proposals are meant for netting those with large amounts of black money to hide. But he reminds everyone that it is not yet ‘government policy’ (because it requires presidential approval). He doesn’t say that it will not become government policy and so it may be safe to assume that the proposal remains on the table. Apparently, the minister favours the amnesty and wants the Federal Board of Revenue to shift its focus to those with large amounts of black money. He has chosen to be ambiguous in his comments possibly because of objections raised by visiting IMF officials.

When the PPP government came up with its first tax amnesty scheme in 2008, it promised not to reward dodgers. It has failed to keep its word. Only a few months ago, it announced a reprieve for stock investors to provide a fresh trigger to investment in shares for boosting capital markets. The amnesty is being touted by the FBR as the last opportunity for tax dodgers to come clean. Still, chances of tax evaders availing of the scheme are as slim as that of government action against them. After all, they already have legislation in place guaranteeing tax exemption for money brought into Pakistan through normal banking channels as remittances. This legislation gives tax evaders enough space to whiten their untaxed money. They pay a small commission to a money-exchange dealer and get remittances in their names. It is hugely frustrating to see the state rewarding those who cheat the government with the help of a corrupt tax machinery.

Media reports suggest the FBR is pushing the proposal as a one-time effort to generate additional revenues to meet the tax target for the current fiscal. However, the scheme is unlikely to help the FBR rake in significant amounts of tax. The 2008 amnesty had yielded just about Rs2.5bn. India has had more than 14 disclosure schemes but the response has been far from encouraging and the ‘parallel’ economy continues to thrive there. Shouldn’t we learn from the Indian experience if not from our own? A better way would be to deal sternly with tax dodgers whom the government intends to help in laundering their illegal wealth. The FBR claims to have all the required information about them. If it must reward someone, it should reward honest taxpayers and not tax evaders.