Participants at a seminar jointly organized by Pakistan and Karachi Tax Bar Associations labeled the recently announced ‘Tax Reform Package’ as one that is ‘bound to succeed towards effective documentation of the economy’. Credits for optimism, but the success of the package should not be touted as a foregone conclusion.
For one, the unintended consequences are already beginning to emerge, details of which were already discussed earlier this week (25 April 2018). More importantly, the measures proposed in the package don’t check the creation of untaxed money; they only hope to check the parking of that money in the shadows. That doesn’t really help towards documentation, because anyone who is smart enough to avoid taxes knows well how to cheat the system.
For instance, one simple place to park half a million dollars is your wrist. Super expensive watches are some of the famous ways of not only parking untaxed (or otherwise ill-gotten) monies but also take it out of the country by simply wearing it and taking the next flight to your favourite tax haven. The wife’s necklaces, and rings for him and her – whether marriage rings or the spiritual ones given by your ‘peer’ – also serve the purpose of parking money. So if it’s not real estate or FX accounts at home or abroad, it’s going to be luxury items, retail business of which should be expected to grow in the ensuing years. (See also Panamas in Pakistan, April 8, 2016)
If the government was indeed serious about documentation of the economy, it would have gone all out to fix the Federal Board of Revenue (FBR), especially its audit, and on-demand collection systems as well as the rolling of VAT mode taxation and doing away with presumptive tax regimes.
Unless the tax evaders know fully well that this amnesty scheme will be the last and that failure to come clean this time around will lead to serious consequences, they will not come forward with honest declarations. And since efforts have not been made to fix the FBR, the view that this amnesty scheme will bear a big harvest of fruits is a pre-mature and misplaced conclusion. If there is any learning from the report of Tax Reform Commission (TRC), it is this. Yet three years since the interim TRC report, progress on the commission’s recommendations has been conspicuous by its absence.
Both the state and society need to realize that without governance reforms, all package-based-economic management are only a merry-go-round way back to square one, which is why amnesties, textile, farming, tax reform and other packages keep emerging every now so often like the periodic resurgence of the circular debt. (See also Before and beyond budget, April 20, 2018) .
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