The following blog is written by Mr. Atiq Ur Rehman, Senior Manager VAT, International Taxation. It is an extremely well written piece. Please read this blog and provide your valued comments.
TAX AMNESTY SCHEMES IN FBR – GOOD or BAD
Tax amnesty scheme is a word of the day in Pakistan as the Federal Board of Revenue (FBR), Pakistan’s premier tax collection agency in repeatedly reminding general public though e-mails, advertisements, and Text messages etc. to avail the benefit of the tax amnesty scheme 2018.
Before entering the realm of whether the tax amnesty schemes are good or bad overall, let’s have a look at the current amnesty scheme mechanics and what it offers. As with previous amnesty schemes the current scheme also relates to assets not disclosed to the FBR before. There are two segments of the current amnesty scheme.
- VOLUNTARY DECLARATION OF FOREIGN ASSETS ACT, 2018: Tax is levied at variable rates ranging from 2% – 5% on different class of assets outside Pakistan. This Scheme is not available to any public office holder, their spouses and dependent children. “Public Office holders” have been defined as any person who is or was during the past 10 year president, prime minister, minister, chief minister, secretary, chief justice, Nazims etc. The scheme is valid from 30th April 2018 till 30th June 2018.
- VOLUNTARY DECLARATION OF DOMESTIC ASSETS ACT, 2018: Tax is levied @ 2% on foreign currency assets and @ 5% on all other assets inside Pakistan. This Scheme is not available to any public office holder, their spouses and dependent children. Further this scheme shall not be applicable to any proceeds that are involved or derived from a criminal offence. The value of the assets shall be determined according to pre-calculated formula mentioned in section 10 of the Voluntary Declaration of Domestic Assets Act, 2018. “Public Office holders” have been defined as any person who is or was during the past 10 years president, prime minister, minister, chief minister, secretary, chief justice, Nazims etc. The scheme is valid from 30th April 2018 till 30th June 2018.
Tax Amnesties are not a new concept in Pakistan or other countries of the world for that matter. Governments do offer tax amnesties to people as a onetime corrective measure. India had launched a tax amnesty scheme in 2016 in which it collected over $10 Billion. The reason behind the enormous success was the tax rate in such amnesty scheme which was 45%.
Below are some of the merits and demits of tax amnesties in Pakistan.
- Tax amnesties are a quick source of revenue for the government and provides rapid funding to the government for its projects.
- Tax amnesties are a measure to bring undocumented people in the tax net.
- Tax amnesties are helpful in recovering from any budgetary shortfall.
- For public it’s a good opportunity to bring the undocumented assets/income in the documented economy.
- Tax Amnesties are a big demoralization and injustice to current honest tax payers
- The tax rate in amnesty schemes in Pakistan is way too low. These results in people being more inclined towards amnesties rather than compliances.
- Tax amnesty schemes in Pakistan are introduced are wrong point in time. E.g. 2018 amnesty scheme has been promulgated at a point where the previous government has completed its tenure and the new government has not taken over the charge. Ideally the amnesties should be announced at the very start of the government so that the government can crack down the crooks in rest of its tenure.
- The frequency of tax amnesty schemes in Pakistan is way too high. On average there is a tax amnesty scheme every 3-5 years. Ideally a tax amnesty should be given once every 15-20 years.
- The government often relies of such amnesty schemes to achieve its revenue target which is a bad performance indicator.
- Tax amnesty schemes are normally benefitting the big giants and not the common man. Though this loophole seems to have been plucked in the current amnesty scheme.
- There is no proper follow up mechanism in Pakistan to ensure compliance of the people who come under the tax net.
As indicated above the drawbacks of a tax amnesty far outweigh the benefits. Yet it can only be termed as a “necessary evil”.
WHAT DO YOU THINK ?
Atiq ur Rehman