The tax amnesty scheme announced by the previous government through an ordinance on April 10, 2018 and subsequently included in the finance bill had received a lackluster response from the illegal offshore and domestic assets holders. The scheme is going to expire on 30th June. But the last minute changes in the parameters of the scheme have further enhanced the mistrust in the people who intended to declare their offshore and domestic assets and regularize their income by paying a tax of 2 percent.
The Federal Board of Revenue (FBR) has illegally excluded the income earned during the current fiscal year from the scope of the tax amnesty scheme. It was the same FBR whose strong arm tactics pushed towards failure the much need documentation of economy campaign in the year 2000. It is no longer a secret that tax collector, willingly or unwillingly; remain hand-in-glove with the tax evaders. The trend of filing tax returns have declined as 43 percent of the registered companies and firms did not file their tax returns last year.
The changed formula for valuation of foreign assets amounts to throwing a spanner in all the work done so far. The development comes despite the backing extended by all stakes holders to the tax amnesty scheme that would have made it a success, notwithstanding the dismal failures of most of such schemes in the last 70 years. The country badly needs foreign exchange and it was due to the precarious condition of external balance that the tax amnesty scheme has the blessing of financial institutions including State Bank of Pakistan (SBP), Security and Exchange Commission of Pakistan (SECP), Pakistan Stock Exchange (PSX), scheduled banks and Pakistan Banking Council (PBC). Official foreign currency reserves held by SBP hover around $ 10 billion and are hardly sufficient to finance two months of imports.
The tax machinery decision to bring about these changes without amending two laws governing offshore and domestic tax amnesty schemes shook the confidence of the people who are keen to declare their assets. It also leaves hundreds of people perplexed who have already availed the scheme and are now exposed to arm-twisting of the rigid tax collectors. Earlier, the FBR expressed the hope that Pakistan would attract up to $ 4billion through amnesty schemes. But if the scheme is derailed, it could further complicate the government’s external sector problems.
For ensuring the success of the scheme, the caretaker government intended to make amendments to the relevant laws to remove the emerging irritants. In this regard the finance minister Dr. Shamshad Akhtar held meeting with SBP and PSX board of directors. The minister agreed with the participants of the meeting that people declaring their assets should be allowed to pay tax from third party account. The existing rules allow the payment of tax from only the account of people declaring their assets.
Despite the tightening control against tax evaders by Organization of Economic Cooperation and Development (OCED) the flight of capital is on unabated. In the financial year 2016-17, a hefty amount of $ 15.253 billion was transferred out of the country via regular banking channels, as well as the illegal conduits of Hundi and Hawala. Let us wait and see which side the camel of tax amnesty will set.