Tax amnesty proceeds

• And implications

With the PML-N’s signature tax amnesty scheme exceeding expectations – some FBR optimists are confident of something upwards of $4b – calls for an extension seem to make sound economic sense. What can be better, after all, than those elusive defaulters finally chipping in especially when the deficit, and the government’s inability to do anything about it, threatens outright default sooner rather than later? Yet it is worrying that this moment is completely without a manner of official, and social, soul searching. These billions are not rolling in out of the largeness of any hearts, but rather because holding illegitimate money abroad after September 1 was going to become far, far more difficult. And the amnesty was laced with incentives too ridiculous to overlook, especially for crooks.

This is, in fact, a reflection of how the government’s legal machinery is simply a non-starter on the matter of taxes. One reason is that few in any government have been reputable tax payers. Another is the breakdown of the FBR itself – a case study in incompetence and corruption – and near non-existence of provincial tax collection systems. Then there is the moral argument, which remains unaddressed even though the country’s ugly reserves situation forced the Supreme Court to green light the amnesty. Regular taxpayers far more honest, and far less wealthy in most cases, than corrupt defaulters now lining up will naturally question readily paying high taxes only to discover they could have simply not paid then got away with paying very, very little.

This is simply another short cut that we, as a nation, are going to celebrate while it lasts in the headlines. Sure, $4b is welcome, but it will hardly do the reserves much good. According to reports more than $15b left the country last year, and FDI is disappearing at an alarming rate, exports are still dropping, imports rising, the rupee in free fall, and a bloodbath in the stock market. To get out of this mess we will need a system that works on principles of economics to earn revenue – trade, tax, remittances – not corrupt practices that facilitate defaulters and cheaters.