The proposed tax amnesty scheme is the need of the elites who want to decriminalize their Benami assets by paying a paltry sum. If law of the land is applied, these properties and cash are liable to be confiscated and the Benami asset holders are prone to rigorous imprisonment. Asad Umar’s tax amnesty was addressing the question of moral hazard, as the proposed tax rates were up to 25%.
Hafeez Shaikh’s tax amnesty scheme is likely to be a bounty for the habitual tax dodgers. Initially, the plan was to introduce separate tax rates for domestic assets, offshore assets and Benami assets, ranging from 5% to 25%. The purpose was to charge maximum rates from the Benami assets holders. Now, it’s very likely that these categories will be merged and there will be only two rates, which will give a bonanza to the owners of Benami assets.
The declaration cannot be treated as evidence. The beneficiaries will be immune from prosecution on the basis of the tax declaration form. The audit cases may be allowed to settle under the tax amnesty scheme.
If the scheme is designed properly by keeping the lobbyists at a distance, the government can fetch up to Rs150 billion during the currency of a tax amnesty scheme on account of tax revenues. The 2018 tax amnesty had fetched Rs124 billion.
World tightening the leash on black money
The global campaign against tax evasion has reduced the avenues for parking tax avoided and black money in an offshore tax haven. People can get benefit from the upcoming tax amnesty scheme by bringing it back into the country. But this will not address the structural problems that are leading to the accumulation of black money. The government has no plans to plug loopholes by amending the Protection of Economic Reforms Act of 1992, Foreign Currency Accounts Ordinance and Income Tax Ordinance of 2001.
The Public Office holders are not eligible to take benefit from the amnesty scheme. Similarly, the proceeds of crimes have also been excluded from the scope. But it is very difficult to establish whether the money declared under the scheme is the proceed of a crime or of an informal economic activity.
The declarations will not be subject to scrutiny by the FBR or other agencies. But their future incomes can be questioned. The declaration cannot be treated as evidence. The beneficiaries will be immune from prosecution on the basis of the tax declaration form. The audit cases may be allowed to settle under the tax amnesty scheme. The civil nature cases might be settled. However, the basic philosophy of any tax amnesty scheme is that the declarant will be truthful and fully disclose his all assets. If he does not do that, he must be taken to the task.
Pakistani Governments have Offered Amnesty Tax Schemes Every Decade
- The first one goes far back as 1958, when Rs1.12bn was recovered from undeclared assets, 1968 (Rs920m collected), 1976 (Rs1.5bn collected), 2000 (Rs10bn collected), 2008 (Rs3.16bn collected) and it has been reported that Rs120bn was collected in the 2018 scheme.
- They were also launched in 1985, 1991, 1998, 2012 and 2016, but the FBR did not report how much was collected.
- FBR estimates it will be able to generate between Rs300 billion and Rs400 billion through the proposed amnesty scheme.
- The current scheme is expected to bar anyone who held a public office since the year 2000 to avail the amnesty tax scheme. In the last scheme, it was kept at 2008.
- Anyone availing the scheme will have to file a mandatory tax return to ensure they enter into the tax net.
- The FBR has recommended three phases for the amnesty scheme for the period ending June 30, September 30, and December 31, 2019. The rate of tax for undeclared assets (other than domestic real estate/undisclosed income) has been recommended at 5pc, 10pc and 20pc for first, second and third phase, respectively.
Shahbaz Rana is the financial correspondent at The Express Tribune. He has over a decade experience in covering the economic policy-making for various media outlets, including The Express Tribune, Dunya News TV, and The Nation. He holds a degree in international relations from National University of Modern Languages Islamabad.