Islamabad — When Prime Minister Imran Khan addressed the nation on 10 June, he had a singular message.
“I am appealing to all of you to take part in the Assets Declaration Scheme because if we don’t pay taxes, we will not be able to raise our country up,” he said, in the televised speech.
Mr. Khan followed up his request with a warning for violators.
“After 30 June, you will not get a chance (to declare your assets),” he said. “Our government has information (of offshore properties and bank accounts of Pakistanis) that no previous government ever had access to.”
The Pakistan Tehreek-e Insaf (PTI) led federal government brought the assets declaration amnesty scheme into effect through a presidential ordinance passed on 14 May, nearly three weeks before the prime minister’s address.
The Federal Board of Revenue (FBR) hopes to generate Rs. 300-400 billion in tax revenues with the amnesty scheme, which will end on 30 June.
If Pakistan’s record of tax amnesty schemes is any indication, however, the PTI offer is likely to fail miserably.
History of Amnesty Schemes
According to a 2013 report by the State Bank of Pakistan, the first tax amnesty scheme was introduced in 1958. It helped in recovering Rs. 1.3 million from undeclared assets, but contributed only 0.1 percent to the total revenue that fiscal year. Rs. 920 million were collected In the 1969 amnesty scheme from undeclared assets – a 12 percent share in total revenue.
FBR or State Bank data could not be found for tax amnesty schemes launched in 1985, 1991, 1998, and 2012. Where data was available, the schemes never seem to have done well. For example, the Pakistan Muslim League-Nawaz (PML-N) amnesty scheme for undeclared imported vehicles in 2013 brought in only Rs. 150 million. In comparison, the total direct taxes collected that year were nearly Rs. 877 billion. A 2016 tax amnesty, which extended only to traders, generated Rs. 850 million, not even a one percent share of the total Rs. 1,344 billion direct tax revenue collected that year, according to the FBR.
Even the state bank 2013 report suggested that “regardless of their revenue potential, amnesty schemes are not robust solutions to the persistent problems of non-compliance” with the tax regime.
The PML-N government’s 2018 tax amnesty scheme, which offered tax rates between 2 and 5%, was perhaps most successful among the 12 amnesty schemes offered before the PTI government’s latest effort. It reportedly generated Rs. 120 billion in revenues. But even this scheme did not succeed in bringing non-filers into the tax net, according to a news report.
It is unclear how many people have availed the PTI tax amnesty scheme so far. The former PTI spokesperson on the economy Farrukh Saleem recently tweeted some details, which Media for Transparency could not independently verify. According to Mr. Saleem, 1,272 people have declared assets and paid Rs. 930 million in dues up until 11 June.
Amnesty scheme Update:
Declarants: 1,272 so far
Amount: 930 million so far
Target: Rs400 billion
— farrukh saleem (@SaleemFarrukh) June 11, 2019
It remains to be seen how successful the PTI assets declaration offer will be when its deadline rolls around at the end of June. But economists are not hopeful it will succeed.
Ad-hoc Amnesty Schemes “Will Always Fail”
Economists are divided on the effectiveness of the tax amnesty schemes. Those in favour argue that additional revenues generated through the schemes can be utilised to provide public services. The argument against amnesty schemes is that such offers reveal the government’s inability to collect taxes.
Abdullah Yousaf, a former FBR chairman, said the ad-hoc approach of tax amnesty schemes should be ended.
“Every tax amnesty scheme in Pakistan failed to achieve its targets,” Mr. Yousaf said. “The ad-hoc approach of increasing tax collection always failed and will always fail in the future.”
Former finance minister Hafeez Pasha said we must come up with tax reforms and this culture of announcing tax amnesty schemes for tax evaders must stop.
“The kind of language used by the prime minister in his televised messages and the warning of consequences shows that the amnesty scheme is not getting much response from the public,” he said.
He said the amnesty schemes have a bad impact on the morale of the honest taxpayers.
Vaqar Ahmed, the deputy executive director of the Sustainable Development Policy Institute, said he thinks this amnesty scheme will fail because it does not provide relaxation in accountability.
“There is no guarantee that law enforcement organisations will not act against those availing this scheme to legalise their assets,” Mr. Ahmed said. “How will people use this opportunity in these circumstances?”
He said the PML-N government’s 2018 amnesty scheme provided cover against accountability which is why he thinks it achieved its targets.
Mr. Ahmed was also not in favour of frequent amnesty schemes. He said the audit wings of FBR and provincial tax authorities must be strengthened instead.