The scheme
EVERY time the phrase ‘tax amnesty’ is mentioned, the immediate reaction of the common man is perhaps comparable with the 1815 eruption of Mount Tambora — and you can’t blame him. How can the government even think of another amnesty? Did the honest taxpayers of Pakistan, and the middle and poor classes, cast their precious votes to elect a government of the people, by the people, for the rich?
Ab initio, any tax amnesty scheme is absolutely unfair to law-abiding taxpayers who have been faithfully paying their taxes; and since indirect taxes are more than 80 per cent of all taxes collected, all of the middle class and poor are taxpayers! Only the rich managed to circumvent the system.
And, what were the results of the numerous tax amnesties of the past? If the system was inefficient and infected before, and is expected to remain so after, tax amnesties will always send the wrong message: don’t pay taxes, another amnesty is just around the corner. As it is, the tax laws already have ‘no-questions-asked’ provisions for bringing in dollars, and investment in certain projects.
Whew! I think I covered them all! However, perchance I have missed out on any crucial point that further maligns amnesty schemes, let it be known I am not being a traitor to the cause; it is purely an inadvertent omission consequent to a highly charged emotional state of mind, triggered by writing about a peeve. But that is exactly the reason I err in the first place; emotions and economic decisions are mortal enemies.
Nobody wants to pay taxes, and wouldn’t if they knew that they could get away with it. And by the way, this characteristic is not specific to Pakistanis. So, those of us, who couldn’t get away with not paying taxes, just cannot digest any government decision to try to collect back taxes from those who did get away with not paying taxes. Beyond being conflicted, we cannot realise that there is no point crying over spilt milk.
Conceivably, amnesty might even be the littlest of all evils.
Further, I for one, and this will be irritating for the democracy camp, firmly believe that wars should be left to soldiers, heart bypass should be left to surgeons, rockets should be left to scientists, and so on and so forth; I would never sit in a plane designed by politicians. By the same token, to Amnesty, or not to Amnesty, with due apologies to the Bard, is a decision best taken by those who understand the intricacies behind — as well as the seen and unseen consequences of — economic decisions. And for abundant clarifications, journalists are not amongst that particular lot.
At the risk of being branded a troublemaker, let me go out on a limb and assert: if the country’s economic managers believe that the current account deficit is at precarious levels and a better option is to solicit dollars and offshore assets held by Pakistanis, compared with contracting more external debt, then so be it. Frankly, we appear to be in bad shape as far as the external economy goes, and things also don’t look rosy going forward. Contracting more external debt will be an expensive and riskier option — the collateral may very well be national sovereignty. Conceivably, amnesty might even be the littlest of all evils.
However to put in my two bits, while offering an amnesty for offshore monetary and non-monetary assets, we might have learned from history. Any tax amnesty necessarily needed to be absolute, covering all present and future legislation; universal, available to everyone irrespective of his occupation or association; and broad-based, covering all foreign assets, identified or unidentified, under or not under investigation. Exclusions, for any reason, will buttress the existing trust deficit with such schemes, increasing the risk of failure.
Admittedly, in the information age, the risk to undisclosed assets is higher and continues to increase; hence a positive response might even be probable. So let’s wait and see. In any case, I suppose it is too late to go back to the drawing board.
Perhaps, at a later stage, an annual wealth tax — or zakat, if you may — on all foreign assets disclosed and continued to be held abroad may be considered. Further, any amnesty needs to invariably be accompanied with credible threat of future adverse consequences for continued default. Easier said than done, but doable!
On the domestic amnesty, beyond the principle established above, my views are rather mixed. Except that any efforts to bring the informal economy into the formal net are commendable.
No, I don’t have a political agenda; in fact I am hardly even a ‘democracy’ supporter. Except dear readers, at the risk of repetition, when you have chest pain, you don’t debate; you rush to the hospital, and trust the Johnny (doctor) on the spot!
The writer is a chartered accountant based in Islamabad.
Published in Dawn, April 12th, 2018