Monthly Archives: January 2016

The Genius of Amnesty

The recently announced tax amnesty scheme for traders will go a long way in increasing the tax base in Pakistan.

With the words tax and amnesty in the same term, the only thing that comes to mind is a huge compromise. Not that the accusations are unfounded. With a history of Government schemes benefitting only their political parties, it is fairly reasonable to say that Tax Amnesty scheme announced in 2016 will go the same way.

But it is not just a scheme, it’s a wondrful trap. The inherent genius of which is undeniable.

You see, once you pay the nominal tax on your black money worth 50 million (or more) you don’t just turn it white; you also show up on the national tax database. After that, no running and no hiding.

And if you don’t avail the scheme, you will have to pay 0.3% tax on every banking transaction worth more than Rs.50,000.

Another masterstroke is addition of the word ‘Voluntary’ to name of this scheme. A psychological hit perhaps, aimed at telling the traders that they will benefit most from the scheme. No forcing, no pushing. The government has very clearly told the traders that they are allowed to be part of a scheme that will suit them.

By limiting this scheme to traders only, the government has perhaps tried to block the pipes for any corruption that might seep through. This will ensure that criminals of all sorts might not use the scheme to go white. Yes, all non-filers are criminals in way, but some of them like the traders can be forgiven.

The immediate response of the Pakistani Media was predictable and disappointing. The scheme was dismissed as ill-intentioned and ill conceived. Headlines screamed ‘Kala dhan safaid karlo’ (turn your black fortunes white). Most failed to realize that removing penalty for traders who have not paid tax is the cost of this scheme, not the objective.

Indeed, it takes an objective and a non- politically aligned approach to really understand what this scheme will do. The objective is to assign traders tax numbers and then tax them continuously. By not enforcing penalties for non-filing, the government is paying for the mistakes of past governments. The revenue which should have been collected as tax in past years, will be officially written off. However it will turn over a new leaf for the payers and the collectors.

The scheme was direly needed. Figures quoted by Federal Board of Revenue officials in the parliament suggest that out of 2.8 million traders in the country only about 625,000 file tax returns. At 22% it is better than the overall taxpayer situation in the country, but still not good enough.

Critics question why the scheme is limited to traders only. The answer is that the scheme would otherwise have been labelled as self-facilitating, as it comes from a parliament full of non-taxpayers. Plus, the government had to start somewhere.

The worries of opposition parties regarding the misuse of the scheme are understandable. Anyone posing as a trader can take benefit of the scheme easily. The only answer is an effective checks and balance mechanism. We can only hope that the FBR comes up with a good solution, the non-filers themselves cannot be relied upon to follow the scheme guidelines.

Unveiled on January 1, the scheme is not perhaps the best new-year gift. It is however, one of the better plans this government has come up with. It has been met positively by the traders.

The scheme has been fiercely opposed by the opposition parties in the parliament. If it helps to turn more people into taxpayers, even at the cost of removing claims on non-paid taxes for the past many years, I say do it.

We hardly need to go into the benefits of a broadened tax net.

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