Pakistan recently launched a controversial tax amnesty scheme in a bid to broaden the revenue-base of the national treasury. The scheme was heavily criticised by the opposition calling it a means of cleaning dirty money.
The government wants foreign account holders to declare their hidden assets at a low tax rate. The individuals disclosing their assets will receive immunity from certain laws as well ensuring that no cases will be opened against them.
FATF and the Scheme
A research firm analyzed the scheme recently and stated that it conflicts with the constitution of Pakistan. The firm added that the relief package, in the name of the scheme, that the government is trying to offer could be challenged in the court.
Furthermore, since the account holders will have immunity from certain laws, the move will not go down well with the Financial Action Task Force (FATF) which has already placed Pakistan on its terror-financing greylist.
According to the reports, FATF sent a written letter to the government expressing its concerns regarding the scheme as well.
Dr. Miftah Ismail Adviser to PM on Finance, however, insisted that the scheme was in line with FATF’s guidelines.
ALSO READ
PM Announces New Reforms Package with Lower Income Taxes & Amnesty for Defaulters
IMF’s Response to the Scheme
In a statement about the scheme from the International Monetary Fund, IMF’s representative told that these schemes don’t prove to be effective.
IMF’s mission chief for Pakistan, Herald Finger, stated that looking at the previous amnesty schemes it is evident that they failed and missed their objectives by a long margin.
Furthermore, these schemes have a negative impact on country’s image regarding transparency in tax collection. They also suppress the genuine efforts made for revenue collection and decrease the morale of honest taxpayers, the global lender added.
ALSO READ
NAB Has the Right to Probe Illegal Money Legalized Under Amnesty Schemes
Moody’s Assessment of the Amnesty Scheme
Moody’s, a credit rating agency, assessed that if the amnesty scheme became successful it would increase Pakistan’s revenue base. However, the agency says that the benefits of the scheme will be short-term and might not go beyond June 2018.
According to reports, Pakistanis hold around $200 billion in foreign assets. Moody’s says that this is the first ever scheme that is directed at those assets.
Moody’s report further added that the chances of the scheme becoming successful are high as the government has offered low tax rates. The scheme, if successful, could add 0.3% to 1% of GDP to the national treasury. However, the benefits will only last until June this year when the amnesty scheme ends.
Supreme Court and the Scheme
Chief Justice of Pakistan recently told that the apex court might review the amnesty scheme as well. CJP added that strict action will be taken against those who have parked their assets outside the country.
The judge further added that a date for the hearing of the case regarding foreign assets will be fixed soon. The court will closely examine the scheme and see if it is against the law and that the assets of the country aren’t being compromised.
In my humble view, the starting point should be looking at the rationale behind the introduction of whitener under the income tax laws and other laws as and when introduced in Pakistan from say 1977 on wards. Laws introduced like the Economic Reforms Act and provision that are used as whitener like prize bonds and section 111 in the Income Tax Ordinance 2001. The Prize Bond Scheme is old scheme and this must also be phased out gradually. It provides a means of parking the black money and income tax when he wins a prize.Property is yet means of parking which perhaps is being addressed and once this addressed it will take care of big chunk of taxable income that escaped taxation..
True said. Currency notes and prize bonds of denomination above Rs 1,000 should be discontinued to curb the black money.