Huzaima Bukhari & Dr. Ikramul Haq
Federal Board of Revenue (FBR) has once again admitted its failure in dealing with the powerful class of traders forcing them to file tax returns as other persons do. The government of the day, as expected, is more than keen to protect the mighty tax delinquents and bringing yet another amnesty scheme to decriminalize the punishable crime of tax evasion. Reportedly, the scheme will be announced through a Presidential Ordinance, bypassing the Parliament. It is strange that the government instead of passing asset-seizure legislature to confiscate untaxed assets is announcing yet another amnesty for tax evaders and that too at a rate which is obnoxiously low.
According to Press reports, the following will the salient feature of the proposed amnesty scheme:
- It will allow the whitening of undeclared capital/business assets up to Rs. 50 million. The traders availing the scheme will be exempted from audit for three years and no question will be asked about their sources of income. They will have to pay just one percent as tax on their declared business capital in the first year.
- For filers of income tax returns, there will be three different slabs enabling them to whiten their business capital without any monetary limitation. The rate of 0.1 percent on declared turnover of in excess of Rs. 250 million and 0.15 percent in excess of Rs. 100 million and up to Rs. 250 million. Turnover between Rs. 50 million and Rs. 100 million will be charged 0.2 percent.
- The scheme will be in force from 1 January 2016 for a period of 1 month without any extension.
According to Press reports, while traders would be able to whiten undeclared assets by paying nominal tax, the government has shown no relaxation on withdrawing withholding tax in the case of non-filers on banking transactions under section 236P of the Income Tax Ordinance, 2001. FBR is now hooked on easy-collection of taxes, look at as many as 58 withholding provisions and their contribution in overall income tax collection is as high as 65%. The transactional taxes are multiple as well as multi-stage. A salaried person, after getting net salary and paying the tax due, is forced to further lose the money while paying mobile bills of him and dependents and even on educational expenses of his children. Such a cruelty is unprecedented elsewhere. The same is the case with even traders, who pay advance tax on electricity bills and no refund or adjustment can be claimed if tax withheld is up to Rs. 20,000.
The Transparency International Pakistan (TIP), as in the past, has strongly protested against the proposed scheme. It has urged the Prime Minster not to approve the proposed tax amnesty scheme as it will amount to “financial NRO (National Reconciliation Ordinance) for tax evaders and big tax dodgers”.
The worthy Finance Minister and FBR Chairman has yet not informed the public how much this scheme will bring in terms of taxes and how many traders will file tax returns. For many years, FBR has been claiming that it possesses “wealth” of information about persons having lavish living standard but not enroll as taxpayers. If FBR’s claim is true, then why it should offer amnesty scheme? It should have initiated legal proceedings against those who do not pay their taxes instead of facilitating them in legalising their wealth.
Though the presence of enormous untaxed money is admitted by all, the actors and factors behind its accumulation are not unveiled, what to speak of punishing them. This baffles the minds of honest taxpayers and citizens. They ask, whether it is on account of lack of political will, or rampant corruption, or collusion of tax dodgers and the tax administrators at defrauding the revenue, or the political system or the ineffectiveness and defectiveness of laws, or the pervasive stubborn indifference of the citizens towards their duties?
The people 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 an amount than what they would have been required to pay under the regular 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 are paying their taxes honestly at much higher rates than those offered to tax evaders in amnesty. The ugliest face of black money emerges in the corridors of power, political as well as administrative. No country other than Pakistan knows better the dangers of allowing tax dodgers, money launderers and drug traffickers to get an upper hand.
The first and foremost objection to any tax amnesty scheme is that it betrays the honest taxpayer and the nation as well. The message sent out by repeated tax amnesty schemes is that taxes are regularly paid by only the honest taxpayers, whereas the “wise” wait to avail benefits of such undesirable schemes.
Laws alone cannot prevent the commission of crimes. Nor can a taxpayer whose position is that of a lamb before a corrupt wolf-like official, fight against corruption. It is the combined, united and forceful efforts of the government, taxpayers and tax practitioners that can do a lot for preventing corruption. Apart from direct monetary costs of corruption, other significant costs, such as loss of government credibility, spread of injustice, distortions in resource allocations and loss of foreign and local investment, are destroying the very fibre of civil society in Pakistan. According to figures released by independent quarters, the parallel economy is growing at an alarming rate of 22% per annum. Every fifth rupee transacted in Pakistan is black. This is not the final count. We have yet not accounted for kickbacks in arms deals, foreign trade, smuggling (e.g. huge tax evasion in the name of Afghan Transit Trade) and foreign exchange racketeering, apart from narcotic trade and other criminal traffic.
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. The best way to deal with tax evasion is not yet another amnesty scheme but asset-seizure legislation to confiscate all un-taxed assets at home and having provisions to seek help of international comity and organisation to bring back looted and/or untaxed money back.
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The writers, lawyers and authors, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).