We incentivise corruption, even make it glamourous
The room is filled with political bigwigs of the ruling elite, influential bureaucrats, tax collectors, financial wizards and spin doctors. All bragging about how they have contributed towards a better Pakistan in their respective roles. Untrue stories and true jokes are shared followed by hollow acknowledgements and fake laughter. There is jubilation and excitement in the air.
A big relief for tax evaders is being finalised. Eager participants and their itching palms wait anxiously for the big day when the amnesty would be announced. The ministries are busy in fine tuning the details so no offender feels offended or left out. The traders’ representatives and other benefactors have lit up their cigars in celebration. Their prayers have been answered. All their black deeds will be whitened. Their impiety will be rewarded. The fireworks are about to begin.
While all this is going on, there in the dark corner of the room a shadow moves nervously, as if trying to get noticed. He is restless. Gradually the silhouette musters enough courage and with a nervous voice asks, “Excuse me, what about me?” Suddenly an eerie silence permeates the festive air. Probing eyes turn towards the transgressor. “Who is he? What is he doing here?” the Chairman of the ruling elite inquires angrily. No one knew. The man in the corner stood up and came under the light where he could be seen. There standing at the edge of the table he said, “I am a taxpayer.”
The above picture truly represents the plight of our taxpayers. They bear the brunt of state’s machinery and government’ apathy while others who defy the tax regime enjoy the fruits of their illegitimate enrichment.
Since coming into existence, Pakistan has been ruled either by the landlords, industrialists, military or a twisted combination of all three. Together, this ruling elite, supported by a meek bureaucracy and an obliging judiciary, controls and profits from many resources this country offers. The sidelined masses, uneducated and deprived, but resilient by nature, have suffered quietly, generation after generation. With little hope at their command, they find a compromised recluse in their mundane surroundings. Their condition has not changed and probably will never change.
The government has announced to amend the Income Tax Ordinance 2001 by introducing section 99 A therein titled “Special provisions relating to traders”. Through this amendment, the government intends to offer concessionary tax rates for traders who (a) have never filed income tax return in the past 10 years (Category A) and (b) have an NTN and have filed return or returns in the last ten years (Category B).
The Category A traders, who have never filed a tax return, meaning they have never disclosed their incomes or paid taxes, can avail the scheme for the tax year 2015 by paying 1% of their working capital. The working capital cannot exceed fifty million rupees. For the tax years 2016, 2017 and 2018, the traders shall be obliged to pay a fixed amount and a very nominal tax of 0.2%, 0.15% and 0.1% on turnover slabs ranging from Rs50 million to Rs250 million respectively.
Category B traders can pay tax for tax year 2015 at the rate of 25% higher than the tax paid in the any previous tax years, or tax on turnover as applied to Category A traders or Rs30,000, whichever is higher. For tax years 2016, 2017 and 2018, Category B trader can pay tax at the rate of 25% higher tax than tax paid for the preceding tax year or tax on turnover at the rates specified for Category A traders.
In essence an amnesty is being given to the traders to whiten their money accumulated through tax evasion.
This fresh “Financial NRO”, now tabled before the National Assembly, is tainted by design. It is unconstitutional and against the fundamental rights of the people, especially the taxpayers of Pakistan. The government has been mandated by the people to hold law violators accountable and not to give them clean chits. Clearly, the government, like its previous counterpart, thinks otherwise.
In a famous case, the Supreme Court declared NRO as unlawful and void as it was a deal between two individuals for their personal objectives and was designed to benefit certain classes of individuals involved in corruption or corrupt practices. The NRO was declared to be against the people of Pakistan. In numerous other cases, the Supreme Court has held that a person cannot be allowed to benefit from his wrongful actions or retain his wrongful gain. The amnesty scheme tabled before the National Assembly will meet a similar end too as it is against the people of Pakistan on many fronts.
First, the scheme is intended to benefit a select group i.e., the traders. There is no reasonable rationale for this “classification”. The superior courts have held in a plethora of cases that classification not founded on “intelligible differentia” is bad in the eyes of law and against the spirit of Article 25 of the Constitution.
Second, the scheme proposes to set a nominal tax rate for the traders in defiance of Income Tax Ordinance 2001. This means that normal taxpayers will be paying tax at a far higher rate than the intended benefactors of the scheme. This scheme is blatantly discriminatory. Moreover, the scheme in its present form vitiates the spirit of Competition Act 2010 as it (the scheme) would surely undermine the business and fair competition environment, pitting one class of businessmen against the other.
Third, it is quite surprising and unlike the past schemes that the intended amnesty will stay effective for good three years till the elections in 2018.
Clearly, this latest edition of amnesty has political dimensions and politics, as we have to know, is a dirty game. The traders are generally known for their allegiance to the Sharifs as PML-N top leadership too comprises of businessmen. Thus PML-N cannot, even in national interest, risk itself from being detached from the traders who have the financial and numerical strength to make a difference in coming elections.
There are some strange facts at play here. The government through an ordinance had imposed a withholding tax on bank transactions that gravely disturbed our traders and businessmen. They were not expecting this from PML-N and rightly so. It was believed that this tax would bring traders into the tax net. The traders called strikes which were quite successful in the trading hubs of Lahore, Faisalabad and Karachi. Traders’ representative bodies called this tax a draconian measure and opposed it with full force. Meeting between government and traders’ bodies were held to resolve this issue. The matter was heading towards some understanding when all of a sudden this amnesty scheme was announced. Where has the withholding tax on bank transactions for filers and non-filers gone? Why has the government gone down on its knees to appease the traders when it had earlier shown some resolve to enforce the law? Is the amnesty a political bribe to woo the traders? These questions crave for some answers.
We have had a variety of amnesty schemes in Pakistan. In the name of equal treatment, every crook has been afforded an opportunity to legalise his unlawful gains. All including loan defaulters (State Bank amnesty schemes), smugglers (Customs amnesty schemes), tax evaders (income tax, sales tax and federal excise amnesty schemes), corporate delinquents and powerful stock brokers (SECP amnesty schemes), power and gas thieves (government of Pakistan amnesty schemes) have enjoyed the fruits of their illegal actions and that too at our poor state’s and honest taxpayers’ expense. The latest in series is meant to benefit the mighty traders.
Why have we introduced so many amnesty schemes? A simple answer is that an “amnesty” establishes that subjects are more powerful than the state. The other reason being that enforcement of law is not the top priority of the present government or was that of the previous ones. Moreover, our judicial system largely benefits the wrongdoers. Furthermore, the corrupt have lodged themselves comfortably in the power corridors. Thus there is no accountability. These factors together have allowed a flourishing black market in Pakistan. Tax evasion is merely a part of it. All you have to do is amass huge amount of wealth by whatever means. No restrictions and no rules. Evade taxes and dodge tax authorities. Form or become part of an association with sizeable numbers. Establish linkages with those in power. Show some political muscle by calling or threatening to call strikes. And voila! Very soon you will be rewarded with a gift — an amnesty to whiten all your black deeds.
The joyride does not end there. You can invest your black money in lucrative “benami” properties in Dubai and Europe using the “hundi” channel or “curvaceous cash couriers” only to reroute the profits back to Pakistan through the banks and avail the benefit of section 111(4) of the Income Tax Ordinance 2001. Butter one’s bread on both sides is what they say in such cases. We are a law avoiding society. We incentivise corruption, even make it glamourous.
The primary rationale given for tax amnesty schemes was that they would generate revenue for the government, regularise the payments, increase tax base and make tax payers more complaint with tax regime. The nation has still not learnt the fate of the previous schemes and it is rightly presumed that they too failed in achieving the goals as the tax net did not broaden, there has been recurring revenue shortfall and budget deficit. Tax compliance is negligible, as always.
Are amnesty schemes a convenient means to launder money? Yes, in many ways they are if proper checks are not applied. Money laundering is a process where the black money generated through scheduled crimes is passed through lawful businesses and financial channels to make it look legitimate. Pakistan has framed Anti-Money Laundering Act 2010 wherein it is clearly provided that proceeds of crime will be confiscated and the criminals punished. However, tax evasion is not a crime covered under the said law. On the other hand, FATF, the world governing body on anti-money laundering and terrorist financing, has developed clear guidelines to ensure that amnesty schemes offered by governments fall in line with global anti-money laundering initiatives. I believe that FATF will closely monitor the latest scheme and I hope that this scheme, if approved, will not cause embarrassment to Pakistan.
It is believed that an individual deviation from law that is noticed but goes unpunished is gradually followed by collective and more mischievous deviations. Ultimately, these deviations become national character. The result is what we see happening so openly in Pakistan – complete freedom to do wrong.
The taxpayer after his brief introduction kept mum. His presence was acknowledged by the mighty few but he was intentionally ignored throughout the session. He had so many questions. When will the wrongdoers be taken to task? When will the state institutions side with the poor and the deprived? When will the guardians of law and custodians of the constitution wake up from their deep slumber? When will I get the promised education, health and security? Where is all my hard earned money spent? He was about to ask these question when all of a sudden he heard fireworks. The celebrations had started. The financial wizard came close to the taxpayer and in a sarcastic tone said, “Dear friend, we know you have been hard done, but this is not the first time nor is it the last. You should get used to such things. Come join us in these celebrations. Enjoy the fireworks. It’s your money after all.”