A REVIEW OF TAX AMNESTY SCHEME
It is believed that more than half of the estimated black money is still in the country
From SHAMIM AHMED RIZVI, Islamabad
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 concealed money.
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 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 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.