I know, it may sound strange to even suggest an amnesty to whiten the black money. The tax evaders should rather be dealt with an iron fist without exception. If at all, one needs to carefully design these schemes only for maximum benefit to society at large, barred by time limits and followed by strict action for non-compliance. What I am going to suggest here is not a typical conventional amnesty where a tax evader gets a legal and protected way out while having these opportunities every now and then with offers being perpetuated for good.

The federal government has already promulgated an ordinance to offer a third tax amnesty scheme, again for industrialists only — by offering them to whiten their black money at 5% rate (across the board) through investment in the manufacturing sector, waiving off up to 49% tax charges with no question asked on sources of funds. The beneficiaries will be setting up dedicated vehicles to pour in this money flow into the industrial sector.

If offered at all, and unlike conventional measures, an amnesty has to serve a wider purpose where not only the black money becomes whitened, but it also creates value to society at large with extended benefits.

On those lines, the idea of offering amnesty to Startups (an emerging young company, or a project backed by an entrepreneur(s) challenging conventional perspective, ways and mindsets, while addressing a key problem in the ecosystem) does have some merit. Especially, when we have never felt bad by offering a number of amnesties over the period, most of which have not really yielded results or made any positive impacts to society, otherwise called unproductive amnesties. For instance, out of many amnesties offered so far, the last huge amnesty scheme offered by the government, which stayed for a long period of time, was for the least productive sector i.e. real estate, which failed to create the needed trickle-down impact where all the stakeholders of society could have benefited.

But as expected, only a handful benefited, given the fact that the price of the land shot up as a result of this. Labour and low-skilled as well as those wishing to own a small piece of land kept dreaming about it only.

So, to make things work somewhat better and to go the unconventional way, how about offering a targeted amnesty and to those having undeclared wealth both onshore and offshore. This can be done by asking them to invest in emerging local Startups that are trying to build new knowledge and innovation economy, which will completely whiten the black money too? See, we have tried many amnesties so far, and again going for another mostly similar one now. So, why not one for Startups too that instils a purpose with a massive potential to not only turnaround the economy and disrupt the conventional ecosystem, but to also address chronic problems facing the society at large?

It is not because we need an amnesty to whiten the black money and bring the undocumented economy into the tax net. But more because we need capital at this early-stage of a new ecosystem, where we need most angel investors to fill in the vacuum and support our burgeoning young talent willing to disrupt the conventional ways of doing business, solve a problem, address a pain-point, and make an impact in people’s lives.

Though incentivizing such investments through tax cuts is also possible, but that way i) the undeclared wealth will remain undocumented and off the shelf; ii) cutting existing taxes will have an impact on tax collections in the short run; and iii) tax cuts should be across the board and not just for this purpose, as Pakistan is a tax-heavy country in the entire Asian region. We have taxed basics, including food, medicines, agriculture, internet, and emerging technologies, from solar to EVs, and means to achieve digital economy, including mobile phones, various gadgets and laptops, while most unhealthy ones like sugar, cigarettes and aerated beverages remained relatively low-taxed. We need to reverse this at the earliest for developing an ecosystem that encourages incentive for health, innovation, growth, progress and prosperity.

(To be continued tomorrow)

(The views expressed in this article are not necessarily those of the newspaper)

Copyright Business Recorder, 2022