Of all the tax amnesty schemes announced, the last tax amnesty scheme was unique in this respect that it was the first scheme that dealt with assets held abroad by Pakistani nationals. These schemes have been issued from time to time appeasing different stakeholders each time, from salaried middle class to vehicle importers and then small traders. There are two issues with launching such schemes: first, there are all kinds of people who are not paying taxes — businessmen, drug dealers, terrorists etc. The government will want only the first type to avail the opportunity; otherwise there is a chance that it may get into trouble with Financial Action Task Force (FATF). Secondly, if the tax evaders know that another tax amnesty schemes will soon follow, he/she would not take the one offered seriously.
Successful tax amnesty schemes are a combination of carrot and stick. But, in Pakistan’s case, incentives do not match threats from the state. One of the basic reasons of failure of these amnesty schemes is that they are politically-motivated and not economy-reform agendas. Countries like Indonesia, where tax amnesty schemes have achieved immense success, is because they inculcate a fear among tax evaders of being caught.
The latest assets declaration scheme will be implemented for 45 days. The government is trying to bridge the tax collection shortfall and if successfully implemented, it is expected that the government may generate revenue around Rs. 150 billion to Rs. 200 billion from this scheme. However, the scheme would be successful only when people realize that the day this opportunity ends, they would not find any place to hide their assets.
The four major objectives of the scheme may be categorized as follows:
- Declaration and reporting of undisclosed assets.
- Declaration of sales and incomes.
- Economic inducement by movement of funds.
- Reduced litigation and enhancement of revenues without much effort.
The scheme will cover declaration of undisclosed assets, benami assets, sales and incomes on or before June 30, 2018 with tax rates ranging from 5-10 percent with certain exceptions but assets would be valued at prescribed rates. Foreign assets will be converted into money and remitted to rupee accounts in Pakistani banks or deposited into declarants’ own foreign currency bank accounts in Pakistan. In the previous schemes, the foreign assets were not required to be transferred to Pakistan.
Some of the distinguishing features of the scheme include:
- Permission for revision in balance sheets;
- Declaration of Benami assets;
- Declaration of Sales/Production in sales tax and federal excise duty; and
- Settlement of litigation cases.
The scheme would be available to all companies and individuals but not to three major categories. Those not allowed to benefit include holders of public office since January 1, 2000, their spouses, children, brothers and sisters or lineal ascendant of descendants. The two other categories include proceeds derived from commission of a criminal offence or cases pending before a court of law with the exception of older pending litigation.
The tax surveillance is considered essential for the functioning of a tax system anywhere in the world. In Western countries the government has to press a single button to know all the financial transactions a citizen has carried out and the amount of tax paid, making it easy for the system to note the discrepancies and take action. The need of the hour is to pass a law to make the ID card number, National Tax Number of a tax payer, which is a first step towards starting a tax surveillance system.