Mother of all tax amnesties

If tax evaders are free to whiten their illicit income, tax payers would obviously feel like fools

JUNE 1, 2018

After the approval of the recent budget, the ‘mother of all tax amnesties’ announced recently by the government has become law. It will continue allowing white-collar criminals to indulge in looting and plunder of the state without being punished.
What is the difference between a white collar criminal and the one who steals or kills for profit?
Suppose the government decides to free all those charged with murder, rape, and other heinous crimes; the government would soon face massive public protests. Yet by allowing tax evaders to escape punishment through tax amnesties, every couple of years, the government is reducing its ability to fight crime and terrorism.
Make no mistake; a financial terrorist is as guilty as the one who sets off a bomb in a public place. Both cause huge losses to the state, but the tax thief is the bigger culprit because the state cannot fight terrorism if it does not have the funds to do so. If taxes are recovered on the billions invested in the property market, or from smuggled cloth and other items, the nation will be much safer, and will not have to depend on IMF and other donors for assistance.
The power of corrupt non-filers is evident from the recent appeal by Pakistan Automotive Manufacturers Association (PAMA) to allow non-filers to buy cars.
According to PAMA, the sale of cars manufactured in the country will drop substantially. Knowing that manufacturers, in collusion with tax evaders were deliberately delaying supplies of new cars, they would be the ones most affected by the ban on non-filers purchasing new cars. These unscrupulous elements may even deliberately reduce production of new automobiles to pressurize the government to cave in to their demand.
Presently the punishment for tax evasion is confiscation of the amount evaded, together with a hundred percent penalty. Therefore, if a man buys a house worth a hundred million rupees and he cannot explain how he got the money to buy it, his house can be confiscated, and he would have to pay a hundred million rupees as penalty for his crime. He would thus have to pay two hundred percent of the looted money.
But the current amnesty will recover only two percent of the looted amount from defaulters. One cannot understand why our government is so lenient with such people. In fact, honest taxpayers would definitely feel that they are fools, paying up to thirty percent tax on their incomes while tax evaders can be free to cheat and whiten their illicit income by paying only a pittance every couple of years.
Another clause in the amnesty scheme is for the government to buy the suspected property at twice the declared value if it believes that the seller and buyer are evading taxes by not declaring the true worth of the property (to pay reduced stamp duties and taxes).
This measure is bound to fail, because tax officials can easily be bribed to accept whatever the two parties declare. A better way is to do what is allowed by the Customs. Any importer can offer twenty five percent more than the declared value of any consignment (which is suspected to be under-invoiced), and the Customs is bound to give it to him at the offered price.
In this amnesty, instead of offering to buy the suspected property at twice the declared amount, the government should confiscate and auction it off to the highest bidder, as is the practice in India. This would of course require advertising the sale price and inviting offers from the public for the suspect property. The government would thus earn billions in revenue without resorting to tax amnesties every year or so.
Under the present law, it is very easy to penalize tax evaders, despite the prevalent corruption in the FBR. Already, the government recovers additional tax from those who are not registered tax payers, as for instance when such people withdraw money from banks.
The government should increase the additional tax substantially, to two percent at least. A tax evader withdrawing or depositing a million rupees from his bank account would then have to pay a hundred thousand rupees to the government. Withdrawing bank notes of five thousand rupees and abolishing prize bonds of more than a thousand rupees in value would greatly help in reducing corruption. But seeing that every government has done its best to encourage corruption, we shouldn’t be surprised if hundred thousand rupee notes are printed and put into circulation in a few years from now.
By announcing tax amnesties every other year, the government is only encouraging more corruption. Knowing that they will be able to whiten their black money every couple of years, tax evaders will go on merrily looting the country.
The writer is former visiting lecturer at NED Engineering College, industrialist, associated with petroleum/chemical industries for many years. He tweets @shakirlakhani
Published in Daily Times, June 1st 2018.