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Pakistan is a unique country where the governments-military and civilian alike-have been frequently introducing amnesty schemes allowing whitening of untaxed/undeclared assets. Historically, both the Legislature and Executive have always shown keenness in appeasing the tax evaders through frequent and generous amnesties and obnoxious laws like section 5 read with section 9 of Protection of Economic Reforms Act, 1992, sections 111(4) and 236W of the Income Tax Ordinance, 2001-just to mention a few. It is a fact that terrorists, kidnappers, extortionists, arm dealers, drug barons and other criminals have also exploited these instruments to decriminalise their assets/funds held benami.

Before coming to power, top leadership of Pakistan Tehreek-i-Insaf (PTI) was calling tax amnesties as "immoral", "undesirable", "unlawful" and a "slap on the face of honest taxpayers". Now, according to a Press report, the PTI government is planning to bring an amnesty scheme soon. The proposed amnesty by PTI government is yet another U-turn.

In principle, every tax amnesty and/or asset whitening scheme is violative of the supreme law of land (Articles 4, 5 & 25) and amounts to encouraging immorality, illegality and cheating as well as betraying complying taxpayers. The first and foremost objection to any such scheme is that it breaks the faith of honest taxpayers and the nation as a whole. The message sent out by repeated amnesty schemes is that taxes are paid only by the simpletons-honest taxpayers, whereas tax evaders-the "wise" and "wicked" wait to avail benefits of such undesirable schemes.

It is disturbing that the PTI Government, instead of undertaking fundamental institutional reforms, revamping tax system and introducing asset-seizure legislature to confiscate untaxed assets and making laws to bring back looted money from abroad is also bringing yet another tax amnesty scheme as was done in the past by successive governments. The question that baffles every sane mind is why do elected governments present such laws/schemes and why do elected members approve them? For the last many decades, Pakistan is victim of terrorism, tax evasion, corruption, flight of capital, all due to policies of appeasement by successive governments, and laws that protect the perpetrators of these crimes. The PTI that made tall claims in the past of ending such laws and taking appropriate action against tax evaders now intends to offer a generous amnesty.

In the Finance Act, 2018, presented by the last government of Pakistan Muslim League (Nawaz) [PML-N] and passed by the National Assembly on May 18, 2018, two laws relating to amnesty were adopted. These were: Foreign Assets (Declaration and Repatriation) Act, 2018 and Voluntary Declaration of Domestic Assets Act, 2018. The grant of unprecedented tax amnesties for foreign and domestic assets/incomes and disproportionate tax relief to the rich and mighty individuals were simply appalling. On the contrary, nothing worthwhile was made part of the Finance Act, 2018 and two finance supplementary bills presented by the PTI government after assuming power that could make Pakistan a self-reliant economy, improve the plight of the common man-no measures for universal pensions, social security or income support announced. There were no tax breaks for companies for creating jobs for the unemployed youth and earmarking funds for human development, especially for vocational training for those who could not attend schools or colleges.

The government of PML-N, ending its tenure on May 31, 2018, was adamant to pass the Finance Bill 2018 without any meaningful debate. In the original Finance Bill, a number of amendments were proposed at the last moment. These were successfully, though wickedly and unlawfully, got approved from indifferent legislators by crafty bureaucrats sitting in the Federal Board of Revenue (FBR) who were serving the interests of political masters and business magnates. Many amendments were not even placed before the Senate, in utter violation of the Constitution. As expected, parliamentarians of the ruling party, who were not even interested to maintain the quorum, merely acted as rubber stamps.

The Finance Bill 2018, handiwork of bureaucrats sitting in FBR, prepared to please businessmen-turned-politicians, was not only passed in routine, as has been done every year, but sadly by committing gross violations of the Constitution of Islamic Republic of Pakistan ("the Constitution"). Foreign Assets (Declaration and Repatriation) Act, 2018 and Voluntary Declaration of Domestic Assets Act, 2018 and some other enactments could not have been made part of Money Bill. These were passed by the House not only in defiance of the of the Constitution but also judgements of the Supreme Court, namely, Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt.) Ltd through its GM (Finance), Lahore etc. and others [(2016) 114 TAX 385 (S.C. Pak.)], Mir Muhammad Idris v FOP PLD 2011 SC 213 and Sindh High Court Bar v FOP PLD 2009 SC 789. If PTI was sincere to undo Foreign Assets (Declaration and Repatriation) Act, 2018 and Voluntary Declaration of Domestic Assets Act, 2018, it could get these declared invalid by referring the matter to Supreme Court as they were passed unlawfully as Money Bill.

Pakistan aptly fits in the concept of a "soft state"-famously articulated by the Nobel Laureate, Swedish sociologist Gunnar Myrdal in his 1968 three-volume work, Asian Drama: An Inquiry into the Poverty of Nations. It is a broad based assessment of the degree to which the state, and its machinery, is equipped to deal with its responsibilities of governance. The more soft a state is, the greater the likelihood that there is an unholy nexus between the law maker, the law keeper, and the law breaker. Pakistan is a classic case of this unholy nexus where since 1958 numerous tax amnesties were announced but failed to achieve the desired results.

The two amnesties of 2018 through 82,889 declarations fetched only Rs 124 billion (domestic Rs 77 billion and foreign Rs. 47 billion), though the then Adviser to Prime Minister on Revenue, Haroon Akhtar, claimed that collection would not be less than US$ 5 billion for foreign assets alone. Many schemes were announced prior to that of 2018. The first scheme in 1958 fetched Rs 1.12 billion, followed by Rs 920 million in 1968, Rs 1.5 billion in 1976, Rs 10 billion in 2000 and Rs 3.16 billion in 2008. Such other schemes were also offered in 1985, 1991, 1998, 2012 and 2016, but FBR never disclosed either the amount of recovery or the names of beneficiaries.

Had successive governments introduced the following measures at federal and provincial levels, our tax-to-GDP ratio could have jumped to 25 percent:

* Individual income tax of 10% with alternate minimum liability of 2.5% of net worth exceeding Rs 20 million, and 20% for companies and other entities.

-- Bridging of tax gap through effective enforcement, especially through integrated automated tax intelligence system capturing all inflows and outflows.

-- Radiographic scanning of all inbound and outbound containers to plug revenue leakages. Stringent measures to counter under-invoicing etc.

-- Withdrawal of all exemptions and concessions, except for genuine charities (waqf, trusts, non-profit organisations) and new industries raising 90% capital through public offers and creating jobs, at least 50% for women.

-- Low-rate harmonised sales tax of 10% on all kinds of goods and services.

-- Excess profit tax on the extraordinary profits of companies.

-- Special taxes and duties on expensive vehicles, wasteful expenditure and luxury items.

-- Exporters of goods and services to get the entire tax back once export proceeds received through banking channels.

-- Substantial property tax on the rich having palatial houses, farm houses etc. Imposition of wealth tax, gift tax and inheritance tax by provincial governments on ultra-rich.

-- Presumptive agricultural income tax of Rs 5000 per acre on irrigated agricultural holdings above 25 acres and Rs 2000 per acre on un-irrigated holdings above 50 acres.

Amnesty itself cannot broaden the tax base or ensure voluntary compliance after its deadline. The PTI Government should take the above steps, make tax laws simple and improve enforcement capacity of FBR though improved training of staff and automation of entire collection system [Automation of revenue collection, Business Recorder, February 1 & 7, 2019].

The important questions are: Will after amnesty, importers stop under-invoicing and mis-declarations? Will there be correct reporting of sales and due payment of sales tax? Will people start declaring correct incomes and not avoid/evade income tax through under-reporting and/or non-reporting and claiming inflated expenses?

The government of PTI must be reminded that one of the worst consequences of black money and tax evasion is their pernicious effect on the general moral fabric of society. They put integrity at a discount and place a premium on vulgar and ostentatious display of wealth. This shatters the faith of the common man in the dignity of honest labour and virtuous living. It is, therefore, no exaggeration to say that ill-gotten wealth is like a cancerous growth in the country's economy, which if not checked in time, is certain to culminate in its death. The solution is not merely another amnesty scheme "for declaration and reporting of undisclosed assets, sales and income for fresh start of a tax compliant economy" unless it is accompanied by a well-thought-for reform agenda and an asset-seizure legislation to confiscate all un-taxed assets at home and having provisions to seek help of international comity and organisation to bring back looted and/or untaxed money back.

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)

Copyright Business Recorder, 2019


the author

Huzaima Bukhari, Advocate High Court and Visiting Professor at Lahore University of Management Sciences (LUMS), is author of numerous books and articles on Pakistani tax laws. She is partner of Huzaima & Ikram, a leading law firm of Pakistan. From 1984 to 2003 she was associated with Civil Services of Pakistan. Since 1987, she has been teaching tax laws at various institutions including government-run training institutes in Lahore. She specialises in the areas of international tax laws, corporate and commercial laws. She is review editor for many publications of Amsterdam-based International Bureau of Fiscal Documentation (IBFD) and contributes regularly to their journals.




Dr. Ikramul Haq, Advocate Supreme Court and Chief Partner of Huzaima & Ikram (Taxand Pakistan), has studied journalism, English literature and law for his Master's and Doctorate. He is Visiting Professor at Lahore University of Management Sciences (LUMS) and author of many books that include Pakistan: From Hash to Heroin and its sequel Pakistan: Drug-trap to Debt-trap, Law & Practice of Income Tax, Law & Practice of Sales Tax, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary, Master Tax Guide, Income Tax Digest (with judicial analysis) and Commentary on Avoidance of Double Taxation Agreement by Pakistan. He writes columns regularly for many Pakistani newspapers on tax issues. He has to his credit over 500 articles on tax issues printed in various journals, magazines and newspapers.

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