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Hidden Wealth: Only Rs.5million

  1. Muslim Commercial Bank
  2. Hidden wealth: Only Rs. 5 million declared
  3. Hilinks: Pakistan's first international portal
  4. Banishing interest from Pakistan economy

The situation has assumed alarming proportions during the last two decades

From Shamim Ahmed Rizvi, Islamabad
Apr 17 - 23, 2000

As was feared in certain circles, the amnesty scheme for regularising hidden income and assets on payment of 10 per cent tax is going to fail. This is confirmed from the fact that with only 2 weeks left in the deadline (April 30) to expire only an insignificant amount of Rs. 5 million has been declared sofar by the holders of black money.

Sources in the Central Board of Revenues revealed that the response to this amnesty scheme has been extremely poor—perhaps the poorest in about six such scheme announced earlier during the last about 40 years. Sources said anticipating poor response to the Amnesty Scheme for whitening untaxed and un-declared assets, the federal government is taking measures to ensure thorough ledgering of all assets and for acquiring the under-assessed property for auctioning. They said the basic reason for the poor response to the amnesty scheme was the absence of vigilant and thorough monitoring as well as non-use of punitive measures already existing in the law. At a meeting held last week at the CBR, senior officials reviewed proposals regarding ledgering of such property through the Income Tax department survey scheduled to be conducted in May 2000. Apart from this, a change in the relevant law is also being considered to help IT department to acquire immovable property grossly under-valued in sale deeds. Such understatements are generally made to evade land revenues and federal taxes.

Amnesty taxation, to begin with was initiated during the regime of Ayub towards the end of 1958. As a result of the amnesty scheme of 1958, 71,289 declarations of excess income were filled by 266,183 tax payers.

Since Ayub's martial law was the first in the history of Pakistan response by 72,289 tax payers as against total tax payers numbering 226,183 was significant. However, in 1969 during the second spell of martial law under Yahya the number of excess income declarations fell from 71,289 to 19,600 only. One significant feature of the excess income declarations in 1969 was, however, concentration of income in lessor number of tax payers.

Amnesty taxation scheme was thereafter tried under the civilian dictatorship of Bhutto in 1976, with disastrous results as the number of excess income declarations and tax paid thereon was critically insignificant. Thereafter, amnesty taxation scheme was also introduced during the regime of Zia without any worthwhile success. Even during the regime of Benazir amnesty taxation scheme did not make any worthwhile contribution to the national exchequer.

In 1997 section 59D was introduced in the Income Tax Ordinance, 1979 during the prime ministership of Nawaz Sharif but did not receive any response from the tax payers. Not only that the said amnesty scheme was challenged in the Lahore High Court (Rawalpindi Bench) vide writ petition No. 2251 of 1997 dated 8.11.1997 and was admitted to regular hearing with notices to the respondents namely the Cabinet Secretary and the Chairman, CBR, Government of Pakistan, Islamabad. In the said writ petition the following prayer was made.

"That in the light of above grounds, it is hereby prayed to declare section 59D of the Ordinance and section 3A of the Act as ultra vires of the Constitution, the Ordinance and the Act;

That protection given to tax dodgers, smugglers, cheats, bank defaulters and white collar criminals may be withdrawn and instead such individuals/persons may be pursued, prosecuted and their income/assets sealed and sold".

The decision on the petition is still awaited. It is surprising that while section 59D is still subjudice before the Lahore High Court the CBR has embarked upon another scheme styled as Amnesty Scheme 2000 by virtue of Circular No. 04 dated March 1, 2000 on the same lines as the amnesty scheme of 1997. The present scheme has many loopholes and areas of mischief deliberately retained in it with the object of giving a great deal of say to the Deputy Commissioners of Income Tax and Commissioners of Income Tax either accepting or rejecting declarations of undisclosed income/assets.

Therefore, this scheme too will fail because in the past only those people were harassed who filed declarations of excess income while no action was taken against those tax payers who did not respond to it.

Secondly the tax payers having gained sufficient belief that tax authorities being devoid of professional competence and lack of commitment will not be in a position to unearth hidden income, their response to the present scheme is going to be equally negative.

Surprisingly routine minds in the Ministry of Finance and the CBR have not bothered to consider that since section 59D was subjudice, judicially the fate of present scheme would be a nonstarter.

However, if the present scheme is also challenged under Article 184(3) of the Constitution, it will politically embarrass the Chief Executive more than any of his fiscal advisers in the Ministry of Finance and the Revenue Division who are all either retired or tired or expatriate officers on contract.

Non payment of taxes in consequence of concealment of income and non-declaration of correct valuation in respect of tangible and intangible assets is ingrained in every society including that of Pakistan. However, in developed countries of the West, where the state is committed to the social, economic and political welfare of its people, the desire to conceal income is minimum because of the commitment of the state to act as a social welfare institution. On the other hand, in the underdeveloped countries of the Third World where majority of the Governments are either headed by dictators and monarchs or unrepresentative rulers, response of the people to the financial requirements of the state is rather insignificant because the states are not welfare by any stretch of imagination.

Pakistan always had the problem of black or untaxed economy, but the situation has assumed alarming proportions during the last two decades. According to research study conducted by the Pakistan Institute of Development Economic (PIDE) the size of overall underground economy has grown from Rs. 15 billion in 1993 to 1215 billion in 1997 — at the rate of about 40 per cent as against 4 per cent in case of formal economy. In view of this size of black economy the declarations of Rs. 5 million is just a joke. When India came up with its voluntarily disclosure of Income Tax Scheme in 1997 with a hefty tax rate of 30 per cent over Rs. 330 billion was declared as hidden income, and income tax of Rs. 100.5 billion was paid in January 1998. We should try to find out how Indians achieved these results.