VTCS: another chance for evaders

The announcement of the latest tax amnesty scheme by the PML-N government may have earned a round of applause from representatives of traders, who by their own admission pay little or no tax at present. However, the move has drawn widespread disdain and criticism from the increasingly rare breed of honest tax payers.
"This is a real discouragement for honest tax payers" stated one disgruntled tax payer on social media, following the announcement of the scheme. "This (will) encourage accumulation of illegal wealth" alleged another while many others wondered aloud over the Constitutional standing of such a move. But perhaps the most accurate assessment was provided by Asad Sumbal who stated that this "hasn't happened for the first time, neither one suspects, the last one."
The announcement of amnesty schemes has become a fact of life in this country. Just as night follows day and day follows night; a new amnesty scheme can be expected from each government. Hence it is that schemes offered in 2008 and 2013 have been followed up by the Voluntary Tax Compliance Scheme (VTCS) which has emerged as the first suggested legislation of 2016. However, there is at least one discernable between the latest amnesty scheme and its predecessors which is that the VTCS is exclusively meant for traders; who sell on goods and merchandise without any further processing.
According to the All Pakistan Anjuman-e-Tajiran (APAT), there are about 3.5 million traders in the country of whom just 125,000 file an income tax return at present. This association and the Finance Ministry seemingly agree that VTCS will manage to convince over a million of these traders to mend their ways and begin filing tax returns. The chambers of commerce and industry for Lahore, Islamabad and Karachi have all chimed in with support for the scheme as well.
The proponents argue that a one-percent charge for "whitening the black money" will appear more lucrative than other channels such as havala.
Their basic argument, one that the government and tax authorities are seemingly concurrent with, is that the complicated tax system is the single biggest driver of tax evasion in the country; not lack of enforcement, collusion with tax authorities or the general lack of accountability. Thus it is contended that a simplified scheme that assumes a minimum tax liability over the next few years, is the right pill for the ailment of tax evasion.
Although the implementation of the scheme faces opposition from PPP and lately, PTI as well, given the absolute majority of PML-N in the National Assembly, the passage of this scheme appears highly likely. Interestingly, both of the opposing parties have stated (Naveed Qamar of PPP and Asad Umar of PTI) that they shall suggest amendments to the bill; neither has threatened to oppose the bill, wholesale. Even the major publications of the country have expressed tacit support for the scheme, hoping that this time; the erstwhile evaders will comply with the law of the land.
Their optimism is nested in the voluntary nature of the scheme, instead of coercive measures. The dangling sword of a higher rate for tax on bank transactions is touted as the stick that follows the proverbial carrot. However, there are at least some reasons to take the optimism with a pinch of salt.
Firstly, while the draft of the bill proscribes a limit of working capital at Rs50 million, there is no impediment that would keep the conniving crowd from filing multiple returns under names of family, friends or employees to funnel through much larger amounts of earnings at a fraction of the tax rate that is applicable on others.
Secondly, even those that are willing to take a shot at a tax-compliant way of business may be deterred by the fact that even the income disclosed is subject to amendment by the tax man, instead of limiting this power to only the undisclosed portion of income.
Thirdly, while working capital has been defined as the net difference between current assets and current liabilities, some believe this definition to be vague and open to exploitation.
Fourthly, the whole concept of an amnesty scheme available to only one segment of the economy, especially in the absence of any detriments that may follow for the non-compliant traders, runs contrary to the concept of equitable taxation.
Lastly, it is worth mention that the FBR has itself scaled down its estimate of the number of traders that are likely to use the amnesty scheme to become compliant tax payers. Initially, the tax authorities had touted as many as three million new tax payers that would enter the fold by taking advantage of this scheme. Subsequently this projection was sliced to two million and then again to one million with an addition of Rs50 billion to tax collection.
If the architects of the new scheme are as unsure as their ever-shrinking estimates show them to be; others should be excused for not betting the house on the efficacy of government's latest plan to promote the culture of tax compliance.