Amnesty Scheme - It is Neither a Documentation Measure Nor Will Result in Increased Tax Compliance. Meanwhile, Why Did IMF Discuss NFC?

Amnesty Scheme - It is Neither a Documentation Measure Nor Will Result in Increased Tax Compliance. Meanwhile, Why Did IMF Discuss NFC?
Doing a U-turn to reach one's objective is the hallmark of great leadership just as lying to save ill-gotten wealth is the hallmark of crooks, said Prime Minister Imran in a tweet on November 18 last year.

So Imran Khan now thinks that the things like tax amnesty schemes are totally fine and halal. Therefore, please ignore statements like the one given below, as a new amnesty scheme is here to build Naya Pakistan.

Meanwhile, commentators have questioned the wisdom of tax amnesty schemes. One such analyst says: “Pakistan’s ruling elite, irrespective of political affiliation, needs to change its course of action”.

In a recent article, Uzair Younus says the new scheme has little new to offer and, therefore, “one can safely argue that its decision will not lead to any meaningful change in terms of taxpayers’ behaviour or the stated aim of increasing the size of Pakistan's documented economy.”

According to the writer, most of the research conducted around the world shows amnesty schemes mostly do not work – for example India, Greece, Russia and Argentine – as “this policy has, by and large, been ineffective”.

The researchers, after conducting a comprehensive analysis, concluded that “these amnesties had little demonstrable permanent impact on revenues” and that “the use of fiscal gimmicks such as amnesties imposes additional costs” and that “countries would be better off avoiding them”.

About tax evasion culture, the writer says, “Pakistan’s wealthy elites, who, after extracting wealth from the country and getting away with not paying their fair share of taxes, know that governments will sooner or later give them amnesty with minimal consequences.”

“The result is that citizens, particularly wealthier ones, are incentivised to evade taxes and take risks (in most societies, evading taxes is a criminal offence) and hide their wealth in precious metals, cash, real estate assets and offshore shell companies.”

The broad contours of the latest amnesty scheme are similar to that of the PML-N government in 2018.

The 2018 scheme was most successful in the country’s history by raising almost Rs100 billion. “However, there is no data available that suggests that tax compliance increased following this scheme, and one can safely say that incentives to evade taxes remained in place.”

On the other hand, Khurram Husain has pointed to another disturbing fact “the near total handover of key institutions of the state to powerful vested interests” – which coincides with the amnesty scheme and the IMF programme.

“The first act of the new chair of the FBR, Shabbar Zaidi, who has built his career protecting big business clients from the tax authorities, was to tie the hands of the taxman from attaching any bank accounts of potential defaulters. Granted this power was being misused grossly, but what exactly does the new FBR chairman have in mind to urge better compliance from among our powerful elites?”

Khurram in DAWN shares the reality of an amnesty scheme: “Don’t believe the hype. This is not a ‘documentation measure’.”

The recent IMF statement [after its deal with the PTI government] mentions “the provinces” is quite alarming given the unending attack on the 18th Amendment.

“It also says that ‘provinces are committed’ to help with reduction of the fiscal deficit ‘by better aligning their fiscal objectives with those of the federal government’. Further down, the statement returns to this topic, and says that the federal authorities ‘will engage provincial governments on exploring options to rebalance current arrangements in the context of the forthcoming National Finance Commission’.”

Given that the provincial governments are not signatories to the agreement, so have no commitments under it, Khurram says, “The language is evasive. Clearly, it’s calling for some action to roll back the provincial transfers, but what exactly does it mean that the ‘provinces are committed’ or that the federal government ‘will engage provincial governments’?”

But the question is: How the provincial transfers can be rolled back in the presence of 18th Amendment? Is someone in Pakistan is pressing ahead with rolling back or at least altering the 18th Amendment?

In short, vested interests are on the top, be it the amnesty scheme or the IMF deal, with the ordinary people of Pakistan at the receiving end.

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