Tax amnesties are not the answer

Published in Daily Times on April 17, 2019

If there is one thing the Pakistan Tehreek-i-Insaf government is known for, it is the many policy U-turns it has taken in its first eight months. There have, in fact, been so many U-turns that the ordinary people can no longer tell whether the government is going to follow a certain policy or end up changing it. They don’t trust anything the ministers say when they blame the previous government for their problems.

Prices going through the roof? Of course, Nawaz Sharif is responsible for that. Seeking a bail-out package from the International Monetroy Fund? Blame the previous government. Unemployment is on the rise? Who else but the PML-N government caused it? Stock market doing poorly? Supporters of Nawaz and Zardari are selling shares in a conspiracy to hurt the incumbents. Rupee losing ground to dollar by the day? The anti-PTI people are buying dollars.

Fortunately for the government, some of the PTI voters do see the PML-N hand in PTI’s failure to deliver on its manifesto promises.

One such person recently told me that bureaucrats were being paid by the PML-N and that they were not allowing the present government to function. Another said the judges who were throwing out cases against PML-N men were themselves corrupt. A Whattsapp message doing the rounds actually names honourable High Court judges and accuses them of being servile, lacking a conscience and being shameless. The irate author asks rhetorically whether the 220 million people of Pakistan are going to let them be or seize their destiny.

It is less than a year since Imran Khan and Asad Umar opposed a tax amnesty scheme proposed by the previous government tooth and nail. Both of them questioned the government’s motivation and insisted that such amnesty schemes benefit only the corrupt. They said proposing such schemes was an insult to the honest taxpayers. Why, they asked, should anybody pay up to 30 per cent tax on their incomes when they see tax-evaders being allowed to whiten their illegal incomes by paying only two per cent? Imran Khan even promised to scrap the amnesty scheme and go after those who had benefited from it. He may not have known at the time that one of the beneficiaries was going to be his sister. Needless to say, the prime minister and the finance minister have taken another U-turn.

The government is proposing an amnesty scheme of its own. The last amnesty scheme raised only Rs 97 billion in taxes. If the government expects to raise Rs 500 billion this time, chances are it will be disappointed.

And yet, raising tax revenues is not that difficult provided there is a will. All we have to do is to learn from the enemy. An Indian in UK once told me he bought a motorcycle for Rs 30,000. The very next day an official from the tax department visited him, asking him to prove that he had bought it with legally earned money. In Pakistan, a non-filer can buy a luxury vehicle worth Rs 100 million without the FBR even noticing it. In India, income tax inspectors have been known to go to wedding dinners, photographing the ladies and making estimates of the values of jewelry worn by them, to determine if they or their husbands earn enough to buy the jewelry. Indian tax officials in disguise routinely visit shops and restaurants and make arrests if receipts are not issued for any transactions. They have the authority to enter homes and inspect TV sets, air-conditioners and refrigerators. They can check if these have been declared in the owners’ tax returns. In Pakistan, on the other hand, smugglers have a free hand, knowing that they cannot be touched even though their activities have resulted in closure of thousands of factories. Agriculturists (who dominate our assemblies) pay virtually no income tax, they get water at nominal rates and every few years they get bank loans written off.

So, when small businessmen see this, they have a right to feel bitter and wonder why they ever registered with the income tax department, paid their taxes and were harassed every year by tax officials. Who can blame them?

Shakir Lakhani

The writer is an engineer, a former visiting lecturer at NED Engineering College, an industrialist, and has been associated with the petroleum, chemical industries for many years

https://dailytimes.com.pk/377658/tax-amnesties-are-not-the-answer/

Mother of all tax amnesties!

Published in Daily Times on 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

https://dailytimes.com.pk/247129/mother-of-all-tax-amnesties/

In Pakistan, crooks will never be caught!

What about them?

Published in Daily Times on July 1, 2015

Sir: In order to increase revenue, the government has imposed a 0.6 percent tax on non-filers of tax returns on all bank transactions. This appears to be a very good step, as it will compel tax evaders, smugglers and other such ‘worthy’ citizens to pay to the government what otherwise would have gone into their pockets. But how will the government ensure its success in rural areas where bankers owe their jobs to feudal lords? Non-filers like landowners, having great clout in the region, will escape paying and by the time the Federal Bureau of Revenue (FBR) wakes up and starts its investigations, the bank managers will have settled in Dubai. Or they might by then become powerful ministers and be able to hire highly paid lawyers to ensure that nothing happens to them.

Shakir Lakhani

Karachi

"Honest" Faisalabad tax evaders!

Tax assaults

Published in Daily Times on June 18, 2015 

Photo credit: Daily Times

Sir: The very honest, God-fearing industrialists of Faisalabad have decided to boycott the regional tax office in that city because tax collectors have imposed a ban on their entry. One of the reasons for this is that the tax men have not agreed to settle sales tax disputes ‘amicably’ with tax defaulters, who apparently think that they are paying much more tax than others in the country. Settling disputes amicably means, of course, acceptance by the government of whatever they pay as tax, which is a pittance.

Faisalabad, it should be mentioned, is one region where the tax collected is not enough to pay the salaries of the tax-collecting staff in that city. Being a major industrial centre, one cannot understand why tax collection from Faisalabad is so low. For every rupee paid to the tax collection staff, the tax collected should be at least Rs 100. The Federal Bureau of Revenue (FBR) should sack all its employees in the Faisalabad office, appoint contractors to recover lost revenue and stop further tax evasion in that city.

Shakir Lakhani

Karachi

Facilitating corruption

Published in Daily Times on June 11, 2015

Photo credit: Daily Times

Sir: Our government is the only one in the world that actually encourages tax evasion. If you have millions in black money and want to buy a house, no problem; just send the money abroad through havala merchants and get it remitted to your local bank account, no questions asked. If you are a smuggler or a seller of smuggled goods, the government dare not take any action against you because it will create a law and order problem, even if local factories collapse and thousands of people become jobless.

Rs 40,000 and Rs 25,000 prize bonds, being instantly convertible to cash, facilitate bribery and corruption. Holders of these bonds should provide their CNIC numbers to the government. They should not be allowed to sell these bonds in the open market and they should be compelled to surrender these bonds to banks if they need the cash.

The Rs 5,000 note should be withdrawn from circulation, because this is another tool used in the payment of bribes. In India, the largest bank note is of Rs 500. To prevent under-invoicing of goods imported from China, the Chinese Customs Department should inform our customs of the value of every consignment exported to Pakistan. Importers indulging in under-invoicing will then be compelled to declare the actual value of their consignments, which will substantially increase government revenue.

SHAKIR LAKHANI

Karachi