- Amnesties past and present
The first tax amnesty scheme in Pakistan was launched under Ayub in 1958. It resulted in a collection of approximately Rs1.12 billion, ($0.24 billion approximately) and 71,289 people came within the tax net. General Yahya Khan’s 1969 amnesty scheme added only 19,600 taxpayers with declared assets of just Rs920 million. Bhutto’s 1976 amnesty saw those declaring assets decline drastically with assets worth only Rs270 million declared. Zia’s scheme was a disaster. The PML-N’s 1997 amnesty could add assets of Rs141 million only.
Musharraf’s 2000 amnesty resulted in assets declaration of $3 billion approximately and was the most successful in terms of revenue collection. In the PML-N’s previous three tax amnesty schemes, only 128 people declared assets. Later on, the PML-N’s 2016 tax amnesty saw just 10,000 declarations and an only Rs0.85 billion declared. However, its 2018 amnesty was able to garner closer to $1 billion but didn’t result in any significant change in the tax compliance culture. This shows that the disease of tax evasion and the curse of black money has been engulfing Pakistan since its early years.
Recently, there has been an uproar over the Assets Declaration Ordinance 2019 promulgated by the PTI Government, commonly referred to as the “Amnesty Scheme”. The opposition has termed it an opportunity for the near and dear ones of the Government to whiten their “black monies”, which is factually incorrect, as political officeholders and those related to them are barred from this scheme. Similarly, the opposition is also claiming it copies the PML-N’s amnesty. As a result of these accusations, there is a lot of confusion as to what exactly is this scheme, is it any different from the last one and whether it can help the stated objective of helping widening the tax base.
Overview: The ordinance has been promulgated allowing undisclosed, unreported and/or under-reported assets, sales and/or expenditures upto 30 June 2018 and/or the “benami” assets acquired or held on or before the date of declaration to be legally declared on payment of very low “taxes”.
Any cash held in Pakistan which is declared must be deposited in the declarant’s bank account(s) and kept there till at least June 30.
Any foreign liquid assets repatriated to Pakistan must be deposited in the declarant’s own bank account(s) locally or invested in Pakistan Banao certificates or any foreign currency denominated bonds, issued by the Federal Government.
Any foreign liquid assets declared but not repatriated back to Pakistan under the scheme, in addition to being taxed at higher rate, must be deposited into the declarant’s foreign bank account(s) by 30 June.
Importantly, the amnesty is not applicable to the following:
- holders of public office and their dependents as well as any of their benamidars,
- a public company as defined by the Income Tax Ordinance 2001;
- matters where proceedings are pending in court,
- matters where proceedings have attained finality under the respective tax laws,
- matters where the proceeds or assets involved are derived from a criminal offence,
- gold and precious stones,
- bearer prize bonds and
- bearer assets
While the declaration needs to be made by 30th June 2019, the tax can be deposited later by paying additional amount of default surcharge other than the tax rates.
An important anti-abuse provision, not in the previous scheme, is that the declarants won’t be able to claim any allowance, credit or deduction in respect of the assets declared and incorporated in the books in consequence of such declaration. In simple terms, this would mean positive impact re tax compliance in future.
Below are the key differences of this current “amnesty” scheme as compared to the PML-N Government’s amnesty scheme:
The requirement to deposit any cash in local or foreign bank accounts would mean that the fraudulent exaggeration in declaration in hope of continuing malpractices through the “buffer” of excess declared cash to “cover” future revenue streams would end.
The anti-abuse provision above.
Inclusion of broader categories of income streams, assets, expenses and sales within the scope.
More impetus of fairer and market values as evident from 150 per cent of FBR or DC values’ requirements mentioned above.
Comparatively higher rates of tax.
Introduction of timeline for “late” payments with default surcharges.
Lack of penal clause in case of the breach of confidentiality.
Some of the exclusions.
There is a well-supported argument that any amnesty, generally speaking, sends out a wrong message to the masses and businesses in particular as effectively the wrongdoers ends up getting a better deal without any severe reprimand. This has psychological and practical ramifications for compliance in the long term.
However, at times the economic situation does require the use of such schemes. There were other better options to achieve the stated goals. However, certain things are positive about this scheme. Certainly, there is always room for improvement and this scheme could have been made even better.
The Prime Minister still enjoys tremendous trust in his personal integrity and also retains his charisma, but the general atmosphere of uncertainty is severely damaging
The most important challenge however would be to address uncertainty. The Prime Minister still enjoys tremendous trust in his personal integrity and also retains his charisma, but the general atmosphere of uncertainty is severely damaging. Unfortunately, this is mostly stemming from an unaccountable media spree of speculations and negative reporting. The last amnesty by the PML-N Government only really took off when the Chief Justice of Pakistan announced that the Supreme Court was not to review it leading to the confidence of the potential declarants. This uncertainty needs to be curbed for this scheme to succeed.
Secondly, the relevant authorities need to run public campaigns and demonstrate they have the information gained via the OECD multilateral convention about Pakistani residents’ offshore accounts and are further strengthening the mechanism to launch a compliance drive immediately following the amnesty. Announcement of such a compliance drive with details of the penalties and timeline, widely publicised in the print, electronic and social media, will lead to the scheme’s success of this scheme.