A draft whistle-blowing law that will empower any citizen to expose a tax evader or induce those with wealth in offshore accounts to bring it back to the country, has been almost finalised by the tax authorities.

Incidentally, the move for whistle-blowing law coincides with the proposed tax amnesty scheme under consideration of the federal government.

After scrutiny by the finance ministry and other necessary approvals, the proposed law is to be introduced on January 1, 2013.

The reward as per draft law for providing information that can be used to hunt down tax cheats is proposed at 40 per cent of the revenue recovered with the help of whistleblower.

The overall scheme also offers cash awards to tax officials who would give information about non-filers of income tax returns, concealed incomes, default by withholding agents, tax frauds and evasion of sales tax/federal excise duty.

Although Pakistan needs to have a very large stick in the form of a whistle-blowing law, a Lahore-based tax consultant Muhmmad Arshad says the involvement of tax department in the scheme will lead to more distortion in the tax administration.

He argued that it will be wrong to include tax officials in the ambit of informers. It is the responsibility of tax officials to hunt down tax evaders, he added.

Mr Arshad also did not rule out the possibility that tax officials may also share information with someone with a condition to share the reward money. It will be a big challenge for policymakers and advocates of the whistleblower law to address suchissues and minimise the possibility of the misuse of the scheme.

It has been reported but not confirmed that wealthy Pakistanis, who have offshore accounts, have recently received notices from their respective Western banks seeking details about tax deduction etc.

The National Accountability Bureau (NAB) has estimated a $250 billion worth of assets of Pakistanis in foreign countries. Other estimates put the money at as high as $500 billion.

To recover unpaid taxes on cash/assets in offshore banks, tax officials also need to be well-versed about international laws, and a sound strategy to proceed in the matter.

FBR tax laws already have provisions to give cash award to an informer who could lead to detection of miss-declaration of value of goods, confiscation of smuggled goods, tax evasion and detection of revenue through audits in all federal taxes—-customs, sales tax, federal excise duty and income tax.

However, these provisions have not been given proper legal cover and projections under the existing tax laws. It has been observed that these provisions for cash award were mostly misused for getting awards in routine cases subject to audit.

Under the proposed law, new sections in the Income Tax Ordinance 2001, Sales Tax Act 1990 and Federal Excise Act 2005 will be inserted.

The cash reward will be sanctioned for the whistleblower giving information about non-filers of returns or credible information leading to detection of concealed income and tax evasion or establishment of defaults in withholding tax after realisation of a part or whole of such tax revenue. Similarly, the income tax officials will also be rewarded.

Tax consultant Muhammad Arshad said it would be wrong to give award to informer of non-filing of tax returns. It is an open secret that a person who own a 10 marla house or 1000 cc car in Pakistan is liable to file tax return under the Income Tax Ordinance.

Critics say it is the responsibility of the tax department to hunt down such people. And the NADRA has already identified over two million rich people with addresses who do not have National Tax Numbers. Nearly three million people posses NTNs but only 1.4 million of them filed income tax returns last year. So the FBR has all the information of tax evaders but it does nothing about them.

Similiarly, the number of sales tax registrants is stagnant around 100,000 for the past several years.

The live taxpayers, who file returns with the sales tax department, are almost half of the total registered number. This is an area where tax officials have all the information but lack commitment to bring tax evaders into the tax net.

The whistleblower law in North America provides protection to informers besides cash awards. In Pakistan, it may be hard to protect such people. The protection of informer may be a serious problem for the tax department.

A tax official said the only way to provide protection to the informers is to give them code numbers instead of using their original names. This is one way of protecting identify of the whistleblowers.