NationalVOLUME 14 ISSUE # 20

Amnesty scheme or incentives for tax evaders?

The Pakistan Tehreek-i-Insaf (PTI) government of Prime Minister Imran Khan has announced a tax amnesty scheme after opposing the idea in the past when it was in the opposition. Experts say the government can generate few billion rupees through the scheme, but it needs more measures to put the economy on the path to recovery.


According to the opposition, the PTI government was copying its policies, but after wasting time. Pakistan Muslim League-Nawaz (PML-N) accused Prime Minister Imran Khan of double standard over the tax amnesty scheme. “When we introduced the scheme in April last year, it was labelled as a criminal rehabilitation scheme. But now that Imran Khan has introduced it, it suddenly is acceptable,” former Prime Minister Shahid Khaqan Abbasi told a press conference. Comparing the two schemes, he said the PML-N’s amnesty scheme was a reform package, while the PTI’s plan was to facilitate tax evaders and money launderers. The opposition believes the prime minister had provided amnesty to PTI’s undeclared or illegal accounts and added that nobody would trust the scheme of a person who frequently takes U-turns.


The new tax amnesty scheme allows whitening of undisclosed expenditures, sales and assets, including foreign assets, at nominal tax rates. The scheme offers a period of 45 days to people for declaration of their undeclared assets, expenditures, and sales along with payment of taxes until June 30 this year. It has five main pillars — scope, default surcharge, exclusions, tax rates and conditions. Unlike the past schemes, no revenue realisation projection is made on the plea that it is meant for allowing the grey economy’s inclusion into the tax net.


The scheme can be availed by all companies, associations of persons and individuals only to whiten their assets, expenditures and sales not declared until June 30, 2018. There is no provision for whitening undeclared incomes both domestic and foreign. For the first time, the government has given another one-year time period to people for payment of taxes with additional different default surcharge rates on a quarterly basis until June 30, 2020. The facility will be available only to people who first declare their assets until June 30, 2019.


Under the scheme, assets within the country and abroad (except for real estate) can be whitened at a rate of 4pc. The whitened cash assets will have to be kept in Pakistani bank accounts. For people wanting to keep their whitened money abroad, a rate of 6pc will be charged. For the declaration of real estate, its value will be considered 150pc of the FBR-assigned value to bring it on a par with the market rate. Similarly, the value of real estate will be considered 150pc of the DC value where the FBR value has not been notified or less than the DC rate. Moreover, under the current scheme, the persons are also allowed to enhance the declared value of immovable property. The tax rate will be 1.5pc for whitening of domestic immovable properties. In case of foreign assets, the fair market value will be determined at the exchange rate prevalent on the date of declaration. The tax rate on undisclosed sales or supplies is 2pc, which is also offered for the first time for bringing undeclared sales into the tax net. It will cover the sales or supplies chargeable to sales tax or federal excise duty, which has not been declared or has been under declared up to June 30, 2018.


The amount of tax will increase by a default surcharge of 10pc, 20pc, 30pc and 40pc for late payment of taxes. The tax rates will increase by 10pc if the tax is paid between June 30 and Sept 30, 2019. It will increase by 20pc in case of payment between Sept 30 and Dec 31, 2019. The tax rate will increase by 30pc in case of payment between Dec 31, 2019 and March 31, 2020, and further by 40pc in case of payment from March 31, 2019 onward till June 30, 2020. The scheme cannot be availed by holders of public offices including president, prime minister, chief ministers, governors, judges, their spouses and dependent children and any public-listed or government-owned company. It will also not apply to gold and precious stones, bearer prize bonds, bearer securities, shares, certificates, bonds or any other bearer assets.


According to the government, the scheme aims to encourage businesspeople to participate in the legal economy. Unlike the past schemes, it makes it mandatory for the people declaring assets to become tax filers. The scheme does not aim to generate revenue but people will now be required to deposit all of their cash in hand into the bank and declare it along with the deposit slip as proof.


Experts say the scheme 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. The government has not fully explained the action it will take against people who refuse to declare their assets. It claims to use “data” and “automation” to identify them but the claims were also made in the past but proved to be empty rhetoric. Analysts say the government has announced the scheme without research and its results are already known to all.


Similar schemes have been used by governments in the past for increasing revenues and improving tax compliance. History proves that none of the schemes succeeded. However, the stick of imprisonment and forfeiture — said to be missing previously — in case of failure to declare assets beyond June 30 is expected to work towards the success of the scheme. One can pray the PTI government’s first amnesty scheme proves to be the country’s last and is followed by the law taking its course.