Pakistan has launched amnesty schemes, after every four to five years, for legalisation of undisclosed assets, stocks and undeclared income, on payment of tax ranging from 2 percent to 10 percent. Tax experts told Business Recorder on Saturday that such amnesty schemes should be discouraged because they give incentives to the corrupt and evaders.
All whitening schemes, launched by the Pakistan government, do not ask for source of income, be it from legal or illegal sources like drug money, the extent and the time period for which tax was evaded which would determine the penalty, undisclosed movable and immovable assets within and outside the country. The repeated amnesties also discourage honest taxpayers who regularly file returns and pay due taxes at the prescribed rates.
When contacted, Ali Rahim, a top Karachi-based tax lawyer, raised the question as to why past amnesty schemes, issued in different tenures, were not successful? The main reason for the failure was that such schemes were ill planned by the tax authorities. Secondly, the schemes were not properly advertised by tax administration in different tenures. Except 'Investment Tax Scheme-2008', all past schemes were not cost-effective for those intended to legalise their assets and income. The lowest rate of 2 percent was offered under the 'Investment Tax Scheme-2008'.
If such a scheme has to be launched, it should be with an open mind. For example, if someone has committed tax crime for the last 10-15 years, he should be provided an opportunity to come into the documented system. The future income of such persons would automatically become taxable, who would come into the tax club. If the government categorically declares that no new scheme would be announced and strict action would be launched against owners of black money then chance of success would be high, Ali said.
According to sources, a time-bound investment tax @ 2 percent on the fair market value was introduced in 2008-09 to encourage investment in business and industry. In response to this, the taxpayers showed remarkable warmth, which was evident from 23,413 declarants of investment tax paying around Rs 2.8 billion against projection of only Rs 2 billion. The government had also allowed legalisation of undisclosed foreign currencies on payment of 2 percent tax under the 'Investment Tax Scheme, 2008', providing an excellent opportunity to disclose unexplained currencies.
When Investment Tax Scheme (ITS) was announced in 2008-09, the FBR had warned that the tax machinery was equipped with database to take possible action against the potential owners of undisclosed income and assets, who would not avail of the benefits of the Investment Tax Scheme-2008 till December 31 2008. This was a first of its kind scheme where discretion to work out fair market value of the undisclosed/unexplained assets was given to the taxpayers under the Investment Tax Scheme-2008 to avoid valuation related complications.
However, the FBR has not yet launched any crackdown at national level against the tax evaders with black money or possessing huge amount of undeclared assets and income. Contrary to this, taxpayers' audit has been stopped for the last many years, which has now been reactivated under annual audit plan 2009-10. In 1999-2000, another amnesty scheme was also announced to legalise the undeclared assets and income at the rate of 10 percent.