UN-TAXED incomes are rising in Pakistan and so are the opaque assets of sectors that are evading taxes.

No less worrisome is the fact that official inducements have failed to check tax evasion, and that tax amnesties have only helped boost the value of the culprits’ hidden assets.

A recently conducted government survey revealed that much of the un-taxed income, irrespective of its source, ends up in real estate, pushing property prices up enormously. Financial managers say that if tax evasion and corruption are to be eliminated, dedicated efforts have to be made to plug the loopholes and tax all incomes, irrespective of their source.

In the present scenario, one prescription available with the government is to prosecute tax evaders under anti-corruption laws and then tax the fruits of corruption.

Recently, tax officials conducted a survey to find out the source of income of people who had purchased properties worth millions in a posh residential society in Peshawar. Just the conducting of the exercise had led to a sharp fall in real estate prices in the Hayatabad area.

Exercises conducted by the Federal Board of Revenue (FBR) have also established that most untaxed income is funnelled into real estate. There are provisions in the income tax law that empower a tax officer to inquire about the source of income of a property-owner. So what stops the tax officials from asking that question?

The Tax Reform Commission has proposed that the federal government engage its provincial counterparts over revising the valuation tables for taxing immovable properties, as low valuations deprive the government of actual taxes and also help property-owners conceal their actual income

Tax Reforms Commission Chairman Masoud Naqvi says his commission has submitted various proposals to the government for documenting the economy, including effective taxation of the booming property market.

The commission has also proposed that the federal government engage its provincial counterparts over revising the valuation tables for taxing immovable properties. He says low valuations are not only depriving the government of actual taxes but also helping property-owners conceal their actual incomes.

Under the proposed measures, the government will review the registration document of a property so as to effectively monitor the actual property transactions, Naqvi says. Under the law, people are required to furnish income tax returns for tax years when they owned immovable property with a land area of 250 square yards or a flat. But this law has not been effectively enforced.

The provinces currently collect stamp duty on the transfer of immoveable properties at their prescribed values, which are mostly not commensurate with prevailing market rates. As a result, black money is being parked at virtually no cost.

In the past, the government introduced amnesty schemes with no questions asked on the sources of funds invested in assets or projects. But this approach shatters the faith of honest taxpayers as they get penalised under such a tax policy.

The National Accountability Bureau (NAB) had proposed withdrawing Section 111(4) of the income tax ordinance, which forbids the tax department from ask questions about the sources of remittances and foreign assets. These are windows for whitening black money at a low cost, ranging between 1.5-3pc.

It also proposed amending the Protection of Economic Reform Act 1992 to enable the government to seize local assets, in equivalent value, or levy appropriate taxes, if any person holds any kind of asset outside the country for which the source of income could not be established.

According to the FBI’s estimates, Pakistanis have $100bn in assets abroad; NAB estimates this amount at $500bn.

Presently, State Bank of Pakistan is issuing bearer certificates/prize bonds of large denominations that are not only providing opportunities to tax evaders to park their black money under such financial instruments, but to also do so at a much-reduced tax rate. The NAB recommends that certificates/prize bonds of Rs7,500 and above be issued by the bearer’s name.

Another important issue is of facilitating honest taxpayers. The income tax department must differentiate between honest taxpayers and those who are concealing their incomes.

Published in Dawn, Business & Finance weekly, November 30th, 2015