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Text Box: The problem of tax evasion and black money in Pakistan has always been a serious challenge to the State. The successive governments tried to unearth untaxed income and assets through various amnesty schemes, but none succeeded to achieve this objective. All such schemes failed miserably in the past. Tax Amnesty Scheme 2000 is yet another attempt to persuade people for voluntary disclosure of “undisclosed income”. It would have been better if a two-tier strategy were evolved, providing for: -
(a)	Compulsory Public Disclosure of Assets and tax paid by: -
(i)	High-ranking civil and military officials.
(ii)	Judges of the Superior Courts.
(iii)	MNAs & MPAs (under suspension these days).
(iv)	Directors of all companies who availed loans exceeding Rs. 10 million from any financial institution.
(v)	Professionals i.e. lawyers, chartered accountants, doctors, engineers, architects, senior journalists, consultants etc.
(b)	Voluntary Disclosure Scheme for the other segments of society.
The privileged classes in society shall act as an example for others to follow. From their public declaration of assets and tax paid by them, the citizen would get inspiration to pay their taxes honestly. Its optional character, without first implementing it for those who matter in the land, confirms that the State has yet not decided to wage an all-out war against burgeoning black economy, money power and corrupt politico-administrative system.

By Dr. Ikramul Haq*


            The Central Board of Revenue (CBR) in its Circular No. 4 of 2000 dated 1st March, 2000, issued under Section 59D of the Income Tax Ordinance, 1979, unveiled yet another tax amnesty scheme to unearth black money. From our past experience with such schemes, it can be said with certainty that the Tax Amnesty Scheme, 2000 (hereinafter: “the Scheme”) will not be the last of this kind. The recurrent appearance of such schemes shows that the State has admitted the failure of tax machinery in performing its main function of collection of taxes. This nation has become addicted to easy money and such schemes have become a routine matter for them. The people being hooked on ill-gotten wealth/income for the last many years know for certain that after every two or three years, there will be an amnesty scheme giving them a chance to get their income/assets whitened by paying far less the amount than what they were required to pay under the normal income tax/wealth tax regime. It is a tragic situation where the entire State apparatus is subservient to those who blatantly manage to hide their income and wealth. It is an ugly joke with those who have been paying their taxes honestly at much higher rates than 10%, which is offered to tax evaders in this Scheme.

II.        The analysis of salient feature of this Scheme is made as under: –

            a)         Universal Application

Prima facie, Tax Amnesty Scheme 2000, is discriminatory vis-à-vis the honest taxpayers, inter alia, for the following reasons:
-	It favours tax evaders and puts the honest taxpayers at    a disadvantage.
-	Disclosure schemes, announced at random, are against Article 25 as these violate the guarantee against arbitrary decisions under the whims and fancies of the rulers in power.
-	The Scheme tantamount to “class” legislation not having any rational basis for persons whose number, identity and situation are still uncertain.
-	It favours unscrupulous taxpayers, leading to unjustified and hostile discrimination resulting in a violation of equality clause of the Constitution. It is an established legal position that if the law permits discrimination, the superior courts can interfere.
                        The Scheme is applicable to all the existing and new taxpayers with one exception of those persons against whom proceedings are pending under the National Accountability Bureau Ordinance, 1999. This is a vague exception. What is the deadline for pendency? Is it 1st March 2000 when this Scheme is announced or the date on which a person files his declaration. Suppose a person files a declaration and later on he comes to know that some proceedings are pending against him with the Accountability Bureau, what will be the fate of his declaration in such a situation? If a person avails this amnesty scheme, will it debar the NAB to take any action against him in respect of those assets in future? If the answer is in positive, it means a blatant discrimination with those whose cases are pending at the moment. Is it immunity from tax or immunity from criminal law as well? If there is no immunity from criminal law, how NAB Ordinance is affected by this Scheme? There are many such questions and ambiguities which need to be answered and clarified.

The Government has not notified publicly the names of the persons whose cases are pending with the Accountability Bureau. This makes the Scheme uncertain and many people out of fear and uncertainty would be hesitant to avail this Scheme. The universal application is, therefore, deceptive, conditional and doubtful giving a leverage to the Accountability Bureau to take out any case out of this Amnesty Scheme by registering a retrospective complaint against anyone, or by using the Declaration as basis for criminal proceedings under any other law.

b)         Ambiguous Terms/Flaws in Immunity

                        The Scheme contains a number of ambiguous terms which have not been defined in the Scheme itself, nor any clause is provided saying that the terms used in the Scheme if not defined hereunder will have their meanings as defined in the Income Tax Ordinance, 1979 or the Wealth Tax Act, 1963 as the case may be. There are serious conceptual errors and self-contradictory clauses. A few examples in this regard are as under: –

(i)         “New Taxpayer” (Who is new? The Ordinance itself defines the expression “assessee” and not “tax payer”.)

(ii)        What does “pending” before NAB mean? (In terms of deadline or future jurisdiction?).

                        (iii)       “Undisclosed asset” (Does it include “under-valued” asset as well?). No independent definition of “undisclosed asset” is given in contradistinction to one given for “undisclosed income.” Para 8(2) of the scheme provides immunity in respect of undisclosed assets prospectively only. On the one hand, the Government wants to abolish wealth tax and on the other only prospective immunity has been given. In the absence of immunity for earlier years in respect of undisclosed assets, people will not come forward to declare such assets.

                        (iv)       “Set off” or “credit” for undisclosed income is not to be given for pending assessment(s), then what is the purpose of “incorporation of undisclosed income in books of accounts”(Para 7 of Scheme is in conflict with Para 9).

                        (v)        The scope of “preliminary examination” in Para 10(1) of the Scheme is not defined. The assessing officer has been given unlimited and undefined authority.

                        (vi)       “Deficiency” and “mistake” in Para 10(3) are vague terms, which have not been defined.

Text Box: One of the worst consequences of black money and tax evasion is their pernicious effect on the general moral fabric of society. They put integrity at a discount and place a premium on vulgar and ostentatious display of wealth. This shatters the faith of the common man in the dignity of honest labour and virtuous living. It is, therefore, no exaggeration to say that ill-gotten wealth is like a cancerous growth in the country’s economy, which if not checked in time, is certain to culminate in its death.                        (vii)      Do the terms “Plant” & “Machinery” in Para 10(6) have the same meaning as in the Third Schedule to the Ordinance or are they to be used in restricted terms?

            c)         Non-existence of Conducive Environment

There has been a number of money whitening schemes available to the citizens till 16th December 1999 when these were withdrawn by the present set up. The people have already availed amnesty through those schemes and now it is uncertain what kind of response the Government is going to get. The previous money whitening schemes such as Foreign Exchange Bearer Certificates (FEBCs), Foreign Currency Accounts and US Dollar Bonds/Certificates etc. provided the people an effective and instant tool to whiten their ill-gotten untaxed income/wealth without submitting any declaration. The people have already availed those unprecedentally favourable and friendly schemes in the fullest possible way; therefore, response to this Scheme is not going to be very warm and substantial.

            d)         Doubtful Finality

All the declarations under this Scheme have been made subject to examination and scrutiny by the tax authorities. The final deadline for cancelling such declaration is as far away as 30th June 2005. Under these circumstances, it will be very difficult for the people to take any risk of availing this Scheme. The tax authorities will find ways and means to find defects with these declarations on one pretext or the other. It will open new vistas of corruption and harassment. This factor alone makes this Scheme highly repulsive to the citizens. It appears that the stalwarts (sic) of CBR once again managed to make the Scheme subject to their “approval” and ensuring their de facto control, hoodwinking the military authorities on technical grounds!

            e)         Valuation of Assets

Text Box: In McDowell & Co. Ltd. v. CTO [1985 154 ITR 148 (SC), the Indian Supreme Court made the following remarkable observations about the ethics in taxation and the honest payment of taxes:
“We now live in a welfare State whose financial needs, if backed by the law, have to be respected and met. We must recognise that there is behind taxation laws as much moral sanction as behind any other legislation and it is a pretence to say that avoidance of taxation is not unethical ………”
The method for valuation of certain assets is as per description in the Scheme and for the residual assets, according to Wealth Tax Rules. A close scrutiny will show that a lot of controversy may surface on the application of relevant rules under which the valuation in respect of many assets is to be made. There is no uniformity or certainty in the interpretation of Wealth Tax Rules and many controversial cases are pending in the courts. The tax authorities, taking benefit of these controversial aspects, will resort to cancellation or rejection of declarations during “preliminary examination.”


There are several ifs and buts preventing citizens in availing the benefit of this Scheme. There is a strong possibility that the main objective of the Scheme to unearth black money and bringing it into the mainstream economy may not be achieved. The point worth considering is that the people may have huge/substantial assets created out of black money but they might lack liquidity to pay 10% on such assets to avail the Scheme. At the moment everybody in the country is facing a liquidity crunch that will be the major obstacle to make this Scheme successful.

It appears that the Government will be the ultimate loser and the citizens will wait for yet another Scheme when the benefits will be more lucrative and there are fewer disadvantages. Even otherwise, people at the moment are not afraid of the fact that if they fail to make any declaration, there will be any punitive action against them. The Scheme also makes no reference in this context. It would have been much better if the Government had first made a comprehensive survey of property and other assets and only after that extended this amnesty, making it clear that after the deadline of 30th April, 2000, these will be an effective crack down on tax evaders.

* The writer, a leading International Tax Counsel, specialises in international tax, corporate and constitutional laws. He is Chief Partner of Lahore Law Associates (Email irm@brain.net.pk). He is member of Visiting Faculty of Institute of Direct Taxes in Lahore.  He studied law, journalism and English literature at the University of Punjab and Government College Lahore.  From 1984 to 1996 he was associated with Civil Services of Pakistan as Deputy Commissioner of Income Tax. He is author of numerous books on Pakistani Tax Laws, some of which are co-authored with his wife, Mrs. Huzaima Bukhari. He has recently been awarded Doctorate of Law on his research : Tax Reform in a Quasi-Constitutional Perspective.

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