Explainer: Pakistan’s tax amnesty scheme

It is the carrot without the stick
The tax amnesty scheme is being introduced by way of ordinance. Twitter today was filled with old screenshots of Imran Khan, Arif Alvi and other prominent PTI leaders calling past amnesty schemes a shameless attempt at letting thieves off the hook by interested parties. Independent of their opposition to the concept of amnesty and its equation to a get out-of-jail free card, the PTI had also opposed the manner in which amnesties were attempted to be brought into law, by way of bypassing parliament through cowardly ordinance-making. When controversial moves such as amnesties are being brought about, the need to bring them to debate is higher than a standard piece of legislation. However, to avoid embarrassment at essentially letting tax evaders off the hook, governments in the past have used the system of ordinances, which have been looked down upon by the Supreme Court as a method of law-making that is only to be used in emergent circumstances, and one that suffers from an inherent democratic deficit. This deficit is especially acute when it comes to fiscal law-making, which all amnesty schemes essentially are. Opposed to the twin pillars of taxation and representation, an amnesty is basically an allowance to avoid past taxation without putting it before the current representatives of the people. It’s a double whammy. The PTI has attempted to excuse itself of the apparent hypocrisy by arguing that the current amnesty scheme introduced by them is not designed for revenue, but in order to broaden the tax net. This is an argument that every amnesty-making government has relied on as a crutch and it is perhaps a necessary argument as this is what makes amnesty schemes legal. If you were to argue that you were introducing a bill because you were too lazy and incompetent to bring tax dodgers to book and you needed the money, it wouldn’t survive a vote or the courts. Hence, the excuse used in the preamble is that the non-documented economy needs to be brought into the taxation system and that it will serve the purpose of economic revival and growth and that the president is satisfied that circumstances exist which render it necessary to take immediate action. The truth is that the non-documented economy is easiest tackled in this way, and that the immediate action was precipitated by the government, making sure the National Assembly was not in session. The amnesty itself is simple as it builds on and borrows from similar laws already in place. Definitions of undisclosed assets are borrowed from the Benami Transactions Prohibition Act enacted by the PML-N. The amnesty tackles domestic immovable property in a novel way that in itself is a shortcut. Instead of fixing the valuation tables of property and doing away with the difference between DC value, FBR value and actual value, which is why at allows for black money to be parked and transferred in speculative property trading; the amnesty document simply decides that a domestic immovable property will be valued at 150% of its FBR or DC value, whichever is higher. So the twin shortcut: no need to get an accurate valuation table going, which would put an end to speculative money parking in properties that leads to them becoming unaffordable; and allowing these parkers to declare them at the same time. For all other assets, the value is what value usually is: the price at which it would sell for in the open market or the price it was bought for, whatever is higher. The amnesty allows you to declare all these assets until June 30, 2019. You are allowed to declare without paying any tax until that date, with the allowance to pay the amount due as declared until June 30, 2020 with a default surcharge. This builds in the second major shortcut that not only is the government giving a lazy amnesty, it is giving you a second bite at the payment of penalties for the whole of the next tax year for a bit of a higher charge. The government is letting you pay for stealing and get away with it right now, or to just declare it for now, and pay at your convenience until the end of the next fiscal year. It is a relief that the government is not letting you steal a bit more for the whole of the current fiscal year, because the date of acquisition of all assets being declared must be June 30, 2018. Except that it is letting you do exactly that for any assets you have hidden in someone else’s name, because they can be declared if acquired or held until the final date of declaration. The same applied to undisclosed liquid assets, as cash doesn’t carry time stamps. Along with asset declarations, the amnesty scheme also allows businesses to declare undisclosed sales and undisclosed expenditures. This is to allow for people who trade under the table to bring their actual books to the tax man. However, people who trade under the table do so because they have not been discovered. So rather than bringing their books to the tax man and being bound to accurate financial bookkeeping for life, they can  just declare the amounts received from the sales they cannot answer for as undeclared cash. The amnesty also allows for you to declare your benami assets and bring them onto your legitimate books. So if you own a property in the name of your driver, now is the time to take it back from him – on paper and in real life. Unless, your driver gets a lawyer and decides to declare that property as being his all along and gives the amnesty penalty on it to make it all halal. Another area where the amnesty attempts to be strict is that it puts certain conditions upon declarations. So if you declare cash, you have to put it in a bank account. If you declare foreign currency, you have to put it in an foreign exchange bank account under your name and any declared foreign liquid asset must be brought into Pakistan, put into a rupee or foreign exchange account, or be invested in a Pakistan Banao Certificate or foreign exchange bonds issued by the federal government or you can just declare the foreign asset and put it in your foreign bank account. So basically, everyone wanting to declare a foreign liquid asset will take the last option and laugh at all the other ones. Or they could even Ayan Ali their foreign exchange abroad, put it in a foreign foreign exchange account and then declare it as a foreign asset. Another halal victory. The amnesty is very strict about not being applicable to holders of public offices and public companies. It is also very strict about not being applicable to any proceeds or assets that are involved in or derived from the commission of a criminal offence. This last one is a proper joke because the government is saying tax evasion itself is not a criminal offence. The amnesty will also not apply to bearer securities or shares or other bearer assets. This is the government saying we are lazy, but were not lazy enough to let you get away with declaring stuff that is already in your name. The amnesty then has section 12, which is the amnesty itself. It allows for any declaration made under the ordinance to not be used in evidence against you else it would not be an amnesty –  it would be a trap. Section 14 then speaks about confidentiality because the last time the amnesty happened everyone got to know what everyone declared. In the end, the schedule contains the rates. All assets other than immovable property to be taxed at 4% of the rate, domestic immovable properties at 1.5% of the rate, foreign liquid assets you want to keep abroad at 6%, unexplained expenditure at 4% and undisclosed sales at 2%. The default surcharge, which we can call the wait and watch payment, goes up to 40% of the total tax amount. So your 6% becomes 8.4%. This amnesty is the carrot without the stick or even the fear of one. Our tax defaulters rightly waited for it, except this carrot came after the last carrot, which came after the carrot before that. The stick is absent. When Imran Khan said ghabrana naheen hay [don’t be scared], who thought he was talking to the tax evaders.   Abdul Moiz Jaferii is a lawyer based out of Karachi. He hosts Agenda 360 on SAMAA TV. He tweets @jaferii **This article has been slightly amended for clarity and corrections. It was originally published May 19, 2019. Follow SAMAA English on FacebookTwitter, and Instagram.

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