'Amnestomania'

Addicted on easy money (it includes speed money, rent seeking, tax evasion, proceeds of crime and fraud etc), certain crooked segments of society need frequent tax amnesties, immunities, concessions-it is a peculiar Pakistani disease (amnestomania). The term 'amnestomania' is coined by us to show that even in the presence of permanent amnesty for whitening untaxed and/or criminal proceeds in the form of section 111(4) of the Income Tax Ordinance, 2001, section 5 of Protection of Economic Reforms Act, 1992 and Foreign Currency Account (Protection) Ordinance, 2001, the tax evaders and plunderers of national wealth need specific tax amnesties periodically. In the wake of Panama Papers, certain Pakistanis (not all) who have been stashing assets abroad were showing interest in an amnesty scheme to whiten the same. The recently-appointed Adviser to the Prime Minister on Finance, Revenue and Economic Affairs, Miftah Ismail, on assuming charge told them "I have good news for you". But bad news for them is that Chairman National Accountability Bureau (NAB) has ordered investigation for their offshore companies and assets.
Ours is the most confused State. Policymakers and legislators are not sure what to do: give amnesty or penalise holders of tainted money? A set of law protects tax evasion and even money laundering and another one provides for rigorous punishment with fine and confiscation of property. This is the real dilemma of governance-enacting of conflicting, rather contradictory laws and keeping the people under fear while simultaneously luring them to indulge in unlawful practices.
In a report, 'Offshore assets: FBR will examine voluntary disclosure initiative', Business Recorder, December 18, 2017, it was revealed that "the voluntary disclosure initiative for offshore assets drafted by Tax Reform Commission Implementation Committee would be examined by the Federal Board of Revenue (FBR) before presenting it to the Prime Minister Shahid Khaqan Abbasi". Earlier in August 2017, Pakistan Business Council (PBC) asked the government "to offer an amnesty scheme to resident and non-resident Pakistanis aimed at encouraging them to bring back their foreign wealth". According to PBC, "the move could attract $20 billion out of the US$150 billion said to be held by resident and non-resident Pakistanis abroad".
According to report, "the stakeholders which included businesses and government officials had almost reached an agreement on enacting the Foreign Asset Tax Bill 2017, for offering amnesty to Pakistanis who held assets abroad". As per analysis of a leading auditing firm, out of estimated US$150 billion stashed abroad, US$40 billion had been invested in foreign real estate either directly or through offshore companies, US$ 50 billion is held in the guise of shares in Pakistani companies, US$ 50 billion in other assets which include manufacturing concerns and US$40 billion are parked in bank accounts. The audit firm says that roughly US$ 3 to 4.5 billion may get repatriated to Pakistan in comparison to the estimate of US$ 20 billion provided by PBC.
FBR has not issued any analysis of its own as to how much it would get from the proposed foreign assets amnesty scheme. This shows how we make policies without proper home work, what to speak of relying on empirical data based on research. The estimates of money stashed abroad from US$ 200 billion lying in Swiss banks alone (by Ishaq Dar et al in Parliament) to illegal outflows of US$10 billion every year (US 2017 Narcotics Strategy Report) are yet to be established through any irrefutable or even reliable evidence. In the past, we also quoted such estimates that attracted criticism from many as if these are our personal assertions. We clarified time and again that we only quoted reports and the admissions of the government in the parliament. We reiterate that we have yet to see any reliable data to aver how much is stashed abroad, out of which how much can be brought back.
The most recent experiment of targeting oversea assets through amnesty is that of Indonesia. Indonesia's government has recently issued new regulations for tracing and taxing the wealth of taxpayers who failed to avail the nine-month amnesty that ended in March 2017. Around 972,000 taxpayers availing the scheme declared assets worth IDR 4,881 trillion (US$496.3 billion). In terms of repatriations, the scheme was disappointing as only IDR 147 trillion worth of assets were repatriated through specific investment instruments introduced by Indonesian authorities (the government's target was set at IDR 1,000 trillion). Indonesian President Joko Widodo vowed in 2016 to implement a "tax law enforcement" programme in 2017 following the amnesty. His finance minister, Sri Mulyani Indrawati, warned tax dodgers that if they did not join the amnesty, they would face "hell". In the Pakistani scenario where is that "hell"? All tax amnesties in the past failed miserably as they did not carry a firm stick.
It is disturbing that the government is contemplating yet another tax amnesty scheme without asset-seizure legislature to confiscate undeclared/untaxed assets if the defaulter fails to avail the same. Without such a law, it will not be possible to get desired results especially when people have the cover of section 111(4) of the Income Tax Ordinance, 2001, section 5 of the Protection of Economic Reforms Act, 1992 and Foreign Currency Account (Protection) Ordinance, 2001.
In principle, every tax amnesty and/or money whitening scheme is violative of the supreme law of the land (Article 4, 5 & 25) and amounts to encouraging immorality, illegality and cheating as well as betraying existing taxpayers. The first and foremost objection to any tax amnesty scheme is that it betrays honest taxpayers and the nation as a whole. The message sent out by repeated tax amnesty schemes is that taxes are regularly paid by only the honest taxpayers, whereas the "wise" wait to avail benefits of such undesirable schemes.
It is high time that our economic and tax managers should realise that amnesty schemes are not to be used as a measure to raise revenue as these discourage honest taxpayers and create distrust in State institutions. On the contrary, practical and workable steps should be taken to deal with the menace of tax evasion and increase revenues by adopting innovative means-'Flat-rate Taxation: An Alternate Solution', Business Recorder, November 20 & 22, 2015. Amnesty schemes, by their very nature reflect defeatism, do not curb tax evasion but on the contrary, encourage it and widen tax gap.
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are member Adjunct Faculty of Lahore University of Management Sciences (LUMS)