Was Amnesty Scheme Pakistan’s only way out?

Abdullah Yousuf, former FBR chairman, explains what are the chances of success and shortcomings of the tax amnesty scheme. He argues that Pakistan needs to learn from other countries to put a full stop to the issue.

amnesty
tax amnesty

We have had similar tax amnesty schemes several times before and the results have not been particularly encouraging. They have not really solved the basic problem, which is that our taxpayer base has to be substantially increased. Such schemes are very ad hoc and what you should actually be trying to do is seeing how you can deal with the issues that we have.

Our real issue is the cash economy and the non-documented economy as a result of which people are able to evade and altogether avoid taxes. This effort of tax amnesty is primarily to try and attract the taxpayers whilst giving them concessions. Previous experience of such schemes shows that they are never successful in increasing the tax base. So, yes we will get some results but not the expected one.

They can use your CNIC number which is your sole identifier – to collect information from all potential third-party sources, banks and credit cards are just some sources.

What you are actually missing out on is a substantial enhancement in your taxpayer base, and as a result, you have a tax gap of almost 80%. 80 out of every 100 people are outside the direct tax net. That means if out of a possible collection of Rs.100, you are not collecting Rs.80. Tax amnesty schemes work as a stop game arrangement, that will bring a little short term revenue but it is not a permanent solution to bring in significant numbers into the taxpaying base.

Ways to avoid schemes like these altogether

Globally, many countries have had issues that we have today, but they dealt with it and they have resolved it. They made an effort to systemize their system and move towards automation. In Pakistan, it would also be easy. They can use your CNIC number which is your sole identifier – to collect information from all potential third-party sources, banks and credit cards are just some sources.

Read more: Economic Gurus: Concerns and Implications of Pakistan’s Financial Crisis – Abdullah…

On the basis of this information, the authorities can confront the individual with the fact and figures, so that the person cannot deny it. It is after doing this that you will substantially enhance your taxpayer base.

And that is what you really have to achieve in order to deal with the fiscal deficit we have been facing continuously, we need to increase our revenue base to increase our total revenues. If done systematically it can actually take a year or so to bring in most people into the tax net.

Abdullah Yousaf is the former Chairman of the FBR. He has served as the secretary of Ministry of Petroleum & Natural Resources, Planning & Development Division, Board of Investment and Privatization Commission. Yousaf is currently serving as the Chairman of Public Sector Committee of ICAP.

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