With the introduction of the concept of "filers" and "non-filers" in the law since the last year, the government of Pakistan has approached the problem of increasing the registered taxpayers in a very positive manner. However, the problem that arises is due to the fact that about 75 percent of economic activity is in the undocumented sector; and bringing it into the tax net is an Achilles' heel task not only for the government, but also for the business community as well.
The effect of this is that the business is being done in a way which encourages the black economy and discourages documentation. One effect is that those branches of banks that are dealing with the markets (not corporate branches) are facing a big drop in their turnover as the business community has started relying on forwarding cheques given by others and also the system of "parchi" has started in markets. Let me further state that goods are sold on credit to retailers and payments are also being made through "prize bonds" besides cash.
To discourage this and to improve documentation it is proposed that a scheme of amnesty should be introduced. It may be said that as to what was the result of the declaration scheme introduced in 2008 and what was the response of the individuals. The answer to this question is that there were three main problems in the last scheme.
1) The time given was too short;
2) There was no proper propagation of the scheme through advertisement in newspapers and electronic media; and
3) Clarifications were issued till five days before the last date of declaration.
One more point to note is that at that time, there was no scare in the market which at present prevails and due to which the individuals would like to avail the opportunity, hence making the declaration successful.
My suggestions are as follows:-
i) Declaration should be allowed for individuals, and no question shall be asked regarding the source of the funds.
ii) Time-bound amnesty scheme should be announced. Time-bound means that in the first month, tax at 2 percent should be paid and in subsequent months the rate of payment of tax should be increased by a 1/4% for each subsequent month and should continue in this manner till the end of the declaration date, preferably end of the financial year.
iii) Multiple declarations should be allowed. This means that a person should be allowed to file as many declarations as he considers necessary. However, subsequent declarations will attract the rate of higher tax as per the schedule of month-wise tax applicable.
iv) Taxpayers should be allowed to declare all the assets at cost. It is clarified that immovable property in Pakistan shall be at the minimum rate of the district collectorate or authority as on 30th June 2015.
v) Besides local assets, foreign assets should also be allowed to be declared in the scheme. This will generate further tax in future as people will have to declare the income of the foreign assets, when they file their returns.
The remittance of foreign assets, whenever sold, has to be remitted to Pakistan in foreign currency and the credit for that can be taken by the taxpayer in Pak Rupee.
vi) All clarifications are required to be dealt with within the first two months of the announcement of the amnesty scheme.
vii) Proper advertisements should be made in not only the print and electronic media, but people should also be informed through the social media (Facebook, Whatsapp, SMS etc)
viii) The taxpayers should obtain National Tax Number (NTN) if not already having the same before the declaration is filed, and the process of obtaining NTN should be made easy and fast.
ix) The persons filing the declaration - old taxpayers or new taxpayers - must file the return of income along with wealth statement for the subsequent tax year and for further 2 years, at least.
x) No questions should be asked regarding the source of funds, except where there is proof that the money was from "drug", "terrorist" or such activity.
This will require a proper criterion to be drafted by the government to the satisfaction of the IMF and the World Bank.
xi) Simple forms should be devised for filing of the declaration.
xii) The declaration in the scheme shall override the following laws:
- Income Tax Ordinance, 2001
- Sales Tax Act, 1990
- National Accountability Bureau Ordinance, 1999
- State Bank of Pakistan Act, 1956
It may be of interest to note that the business community is also talking about the declaration scheme and the government does not have the infrastructure to catch all the tax evaders, hence I feel that the declaration scheme shall be a great success, not only in terms of collection of tax, but also broadening the tax base.
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