SUPPORT or criticism of the latest tax amnesty apart, many people are interested more in what it would bring to the coffers of the business-friendly PML-N government.

After all, the periodical tax amnesties of the past have fetched paltry sums in revenue and legalised enormous amount of tax-evaded money.

Even before the parliament starts debating the new amnesty, experts have discovered loopholes which make it look more an incentive for a laissez-faire economy rather than a fairer, documented economy.

The scheme does not offer any amnesty on assets and only allows whitening of business capital of traders mostly retailers and wholesalers so there will be minimum misuse of the scheme

The bill for a four-year tax amnesty scheme last week introduced in the National Assembly proposes to allow non-filer traders to whiten their undeclared profits by paying a 1pc tax. And the return filer traders are also being facilitated to pay nominal tax on declaration of turnover for four years.

Like in the past, the PML-N government too has preferred shortcuts avoiding taking the hard way to improve the tax culture. Critics say amnesty schemes essentially encourage tax evasion, not compliance.

The government claims its amnesty will induce one million traders to enter the tax net, a fond hope at best for the government and an illusion for the realists.

There are counter arguments about the success of schemes in terms of traders’ registration. Some tax officials believe the scheme will only bring between 50,000 to 100,000 traders under the tax net. However, it depends on the efforts of RTOs how successfully they sell the scheme to traders.

The past record of amnesty schemes shows that in 1958 an amount of Rs1.120bn was declared by taxpayers, Rs920m in 1968, and Rs1.5bn in 1976. Special schemes of tax exemptions were announced in 1985, 1991 and 1998, but no official record is available on the output of these schemes.

In the year 2000, the government announced a tax amnesty scheme which resulted in recovery of Rs10bn on declaration of movable and immovable assets. The same scheme was offered in 2008 which raised Rs3.16bn.

Besides, there is a permanent window for money whitening under section 111 (4) of Income Tax Ordinance 2001. Investors also use prize bonds for whitening their assets. In the presence of these permanent windows, tax analysts believe there is no logic of giving a special scheme.

Opposition parties in the National Assembly also questioned the need for such a scheme. They wanted to know the fate of the previous such schemes. The FBR has no data on taxpayers’ profile.

But tax officials say this scheme is different from the past ones. It does not offer any amnesty on assets and only allows whitening of business capital of traders mostly retailers and wholesalers so there will be minimum misuse of the scheme. There are 3.6m commercial enterprises in the country.

The contribution of traders in GDP is high, but its share in tax revenue is negligible. Poor tax compliance of traders makes a strong case for getting them into formal economy. Some prominent sectors such as banking, insurance, stock exchange, oil and gas exploration and production have also been assessed under the similar schemes in the past.

There are three major loopholes in the draft bill. It is silent what will be the status of audit after four years and future audit of such taxpayers. There is no column in the proposed single page return form to bifurcate between incomes from trading and other sources. It is also not clear whether the people, who submitted the single page return in first year, will do the same in next three years.

On the facilitation side, the FBR is considering to waive off the online registration condition for traders, which is mandatory for normal taxpayers in filing of returns. The traders will submit a single pager with CNIC copy at regional tax offices (RTOs) across the country.

The tax department will deal with the data of all such people separately and will put their names on the list of active taxpayers list on daily basis as well.

Analysts are of the opinion that businessmen may file returns in the name of family members to declare their assets below the threshold of Rs50m on various businesses and avail themselves of the three-year incentives of lower tax liabilities. After three years, the whitened money will be gifted to the original owner. Businessmen know how to make best use of such schemes to evade taxes.

With the simple majority in the parliament, PML-N can easily pass the bill from National Assembly. FBR will notify it through a notification. The duration of the scheme is expected until February 28, 2016.

The tax department is facing issues of poor compliance and enforcement, while the government is always looking for shortcuts. This is no solution to the documentation problem, says an analyst.

Published in Dawn, Business & Finance weekly, January 11th, 2016