Pakistan: Tax amnesty scheme

Editorial:The Frontier Post

If state institutions that are supposed to ensure rule of law and socio-economic justice are themselves involved in legalizing corruption, this will lead to institutionalizing fraud and irregularities to inculcate the worst dishonesty that would strengthen corrupt practices as a culture to further destabilize Pakistan. The question arises out of a the Federal Board of Revenue scheme to allow tax evaders to whiten their black money and assets at home and abroad within three months against a nominal one-time charge. The federal cabinet astonishingly approved the damaging scheme the other day and also granted blanket exemptions to tax dodgers from investigation by the National Accountability Bureau and the Federal Investigation Agency. The schemes will now be presented to parliament through a bill probably hopefully next week. FBR believes that the schemes will bring 3.1 million more people into the tax net, including frequent travelers, owners of multiple bank accounts and those living in posh areas but not figuring on the tax roll. These corrupt people will be able to benefit from the Tax Registration Enforcement Initiative and the Investment Tax Scheme, 2012, within three months. Black money will be whitened if a tax evader pays Rs40,000 to legitimize assets worth up to Rs5million in the first month. Those availing the offer in the second month will have to pay Rs50,000 and in the third month Rs70,000. The scheme is the brainchild of the new FBR chief Ali Arshad Hakeem who probably thinks that one corrupt practice can be fought with another. But as two wrongs cannot make one right, his novel plan cannot work, at least in a society which is now embracing the norms of democracy and institutional supremacy to move to a civilized culture. The FBR should have been worried about affluent Pakistanis paying one of the lowest tax in the world. Pakistan is a home of around 180 million people and only 260,000 of them have paid tax consecutively for the last three years. Their overall contribution has been a paltry 9.1 per cent of GDP last year, among the lowest in the world because the country has one of the least effective fiscal regimes across the globe. The government should, instead, have cracked down on tax-evaders, not letting them off the hook particularly when the FBR chairperson says that he is in possession of the entire data of tax evaders including politicians, businessmen, cricketers and showbiz people. But he has preferred to wait for the parliamentary approval of the new scheme that, according to him, would create an environment where it would not be difficult to hit them. If the data of all tax evaders is already available, the government should publish a tax directory and shame the evaders instead of bringing out this scheme that is bound to destroy an already fragile tax system that is afraid of the big and the powerful. And who can be sure of the parliamentary approval of the plan when influential people are there to frustrate the passage of any law hitting their vested interests. This seems difficult also because the next parliamentary elections are not far away and the country’s elite club would have a great leverage in its hands. Nevertheless, the whole legal edifice of the scheme is tilted in the favour of a particular class and, therefore, unfair to those who pay tax. It is also discriminatory in favour of cheaters and evaders and certainly falls within the mischief of the violation of the constitution. The International Monetary Fund bailed Pakistan out with an $11.3 billion loan package in 2008, but the deal was ended last November after Islamabad rejected strict reform demands, largely over tax. The IMF has repeatedly warned Pakistan that it needs to make urgent structural reforms to boost growth, currently scraping along at around three per cent, enough to absorb its rapidly growing population into the workforce. It also told Pakistan to introduce general sales tax, which it says could generate another three per cent of GDP in revenue and introduce property taxes. A shortsighted government is currently focusing only on meeting its target of collecting 2.37 trillion rupees in tax this year, 10.1 per cent of GDP, up from 1.33 trillion in 2008-9 for which the highly controversial amnesty scheme no matter how dangerous it would be in future.