review of the tax amnesty scheme
It is believed that more
than half of the estimated black money is still in the country
From SHAMIM AHMED
Jul 17 - 23, 2000
The tax amnesty scheme launched by the present government of General
Pervez Musharraf has proved more successful then any such scheme launched by different
governments during the last over 40 years. The scheme aimed at widening the tax net
through providing yet another opportunity to the tax evaders to whiten their untaxed
concealed assets has yielded about 105 billion in tax as about 88000 persons made
declarations of over 103 billion rupees till June 30, 2000. There are indications that
deadline may be extended upto Sept 30 in view of the demand from relevant circles.
The TAS 2000 was described by the government spokesman as most
successful amnesty scheme in the country's history, as the total tax recovered under the
1958, 1969, 1976 and 1997 schemes amounted to just rupees one billion. The most recent
scheme of 1997 had fetched only rupees 141 million. The results of TAS 2000 are far better
than expected by the Ministry of Finance and even the Central Board of Revenues who always
make inflated claims about such Schemes.
Even they were expecting declarations to the tune of 60/70 billion of
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 filed by 266,183 taxpayers.
Since Ayub's martial law was the first in the history of Pakistan
response by 72,289 taxpayers as against total taxpayers 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.
Amnesty taxation scheme was thereafter tried under the civilian
dictatorship of Bhutto in 1976, with disastrous results. 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.
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
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 Economics (PIDE) the
size of overall underground economy has grown from Rs.15 billion in 1983 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. 103 million cannot
be called satisfactory. When India came up with its voluntarily disclosure of income tax
scheme in 1997 with a hefty tax rate of 30 per cent over Rs330 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.
In view of the size of black economy the Independent economists are not
satisfied with these results as according to them less then 10 per cent of the untaxed
concealed money has been declared despite being the lowest ever cost of whitening of black
money. According to them only that hidden wealth has been declared which was mostly
invested in the real estate and which could no more be concealed because of the ongoing
property survey. Tax evaders still believe that the tax authorities devoid of any
professional competence and lack of commitment will not be in a position to unearth hidden
income and investments in other fields. Moreover a major portion of untaxed concealed
money with estimated to be over Rs1500 billion has fled out of the country because of the
corrupt political governments during the last 10 years provided full facilities for such
transfer of money without any charge in the form of foreign exchange bearer certificates.
It is however believed that more than half of the estimated black money is still in the
country kept and invested in different forms other than real estate and the authorities
should hire some professionals to device innovative methods forcing the custodians of such
illegal money to declare it. The deadline of TAS may be extended upto September or even
upto Dec 2000 with whitening charges at 15 per cent. The response of tax evaders and
owners of black money will largely depend on how vigorously and determinedly the
government carries out its surveys and how it gets hold of the tax evaders.