Finding a taxpayer in Pakistan is like sifting through the proverbial haystack in pursuit of a needle. After all, in a country of more than 180 million people, only about 200 companies contribute a massive 85 percent of the total taxes collected by the GoP.
On the other hand, sectors that generate about 85 percent of the national income, contribute nothing to the national exchequer.
Moreover, four-fifths of total tax revenues are generated from indirect taxes, duties and other non-income based taxes. As a consequence, there is virtually no elasticity in the tax system. And in this skewed tax environment of Pakistan, any policy reforms remain meaningless in the absence of a concrete, market-oriented enforcement ability.
FBR Chairman Ali Hakeem had been instrumental in developing the Nadra database, during his previous appointment with that institution. Now, as the head honcho of the GoPs tax men, he has leveraged the same Nadra data to devise an out-of-the-box solution for reigning in more than three million tax evaders.
The Achilles heel of his agenda is the Taxation Registration and Enforcement Initiative 2012; more popularly known and derided as the tax amnesty scheme.
The salient and most contentious features of the scheme are the collection of a token tax amount of Rs40,000 for unpaid income tax, along with the collection of one percent of total undeclared assets value, as full and final settlement of outstanding wealth tax dues.
Given the less than stellar results of previous tax amnesty schemes, the TREI 2012 stirred controversy from the outset. Some dubbed it a laundering technique; others have argued that it infringes on the rights of honest taxpayers by facilitating evaders.
But the scheme has been welcomed by the Prime Minister and is to be presented to the Parliament to turn it into legislation. The ball may not be out of the woods for the GoP, even after both Houses pass the bill as the Supreme Court may take notice of the law, in light of the dissenting voices against it.
Whichever way that cookie crumbles, the intended law as it stands today would ensure that those who do pay the token taxes will have the comfort of knowing that no legal action may be initiated against them for previous tax evasion.
But the incentive for grasping this opportunity to come clean will only appear attractive to hitherto evaders if the threat of being caught and penalized is credible.
It is true that tax amnesty schemes of the past were far from raging successes for the government. However it is also true that the technology-enabled FBR (thanks to Nadra) is not your grandfathers tax man, either.
Given the extensive database at its disposal, the government can easily identify tax evaders and block their CNICs and passports. In turn, this would mean tax evaders would not be able to travel abroad; buy or sell any assets; or as a matter of fact, get married!
Even if 500,000 individuals do opt for the amnesty scheme, Hakeem and his team will be able to use their information to help highlight other evaders using similar lacunas to reign in the other evaders. Not a bad plot!
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