Tax amnesties

Why do we need a tax amnesty? Asked my son after watching news at 9pm. Because we don't pay taxes, I replied. But why don't we pay taxes? He asked next. I paused, then after a moment, replied. We don't have a culture of paying taxes. Being argumentative, he asked again. Why is there no culture of paying taxes? I told him a story. The Mughal Court at Delhi was unable to collect taxes in Bengal and South India. Midnapur and other adjoining areas were given to the East India Company to collect taxes. Tax collection has always been a problem in the Subcontinent. Landed classes were obliged to pay land revenue and other related levies. None would pay willingly for multiple reasons. Muslims nabobs, being a privileged class, would go unaccounted. Majority of the population was not represented in the government and had no allegiance to the government at Delhi or Lahore. Rulers were foreigners, seen as invaders, having different faith. Then some locals became merchants and started businesses. Again, same problem was faced. These merchants or banyas would not pay taxes. This class of merchants, after amassing wealth, became industrialists and would not pay taxes. In the beginning, the Company showed efficiency and collected taxes, which it would pay to the Mughal King at Delhi. It would also earn profits for its shareholder in London. Most notable English people, Clive and Warren Hastings were impeached on corruption charges. Many other English officers faced retribution on corruption. Locals in bureaucracy and administration also started stealing money through bribes. Administrative structure built by the British during the Company's and Crown rule in India had certain checks and balances but it all became outmoded with the passage of time. India Office and Secretary of State for India all ensured that flow of revenues from India continued. The last constitutional instrument, the Government of India, 1935 was drafted in a way that the financial interests of the Empire were fully secured. Different Land Revenue Acts, the Indian Income Tax of 1922, the Central Excise Act, 1944 and many other fiscal statutes contain elaborate provisions for punishing evasion of taxes and other levies. After partition, old system was continued. Scruples of the system failed before new machinations. Jinnah could foresee it and clearly pointed it out in his famous speech of 11 August 1947.It was too much for a kid.
How many people pay income tax in Pakistan? He asked. I said, about 1.5 million out of 220 million people. But papa, when I look around, in markets, people going on foreign trips and performing Umras every now and then, building big houses in posh housing schemes and over the weekends thronging restaurants, there would be many millions, I guess they should be paying taxes, he said. Son, over the decades, we have fallen prey to a culture of greed, apathy, corruption and inefficiency. Our system of tax collection is outdated and infested with inefficiency, incapacity and underpaid officers and staff. But will this tax amnesty bear fruits? He asked. Son, I remember the first tax amnesty came in 2001, then in 2018 and now a new amnesty is in the offing. There might be some amnesties given earlier as well. US $ 1 billion was collected supposedly in the last amnesty scheme according to some news report. But is it fair that those who pay taxes, some of them even 30 percent of their income, are left with burning hearts, while tax evaders and the corrupt are to pay only 2 to 4 percent of their looted/laundered wealth and get a clean chit? He asked next. Would it be right to say that the Governments, in fact, give cover to their inefficiency and grant clemency to the elite? I told him that amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period or periods and without fear of criminal prosecution. The biggest advantage is that the Government documents the economy and all those who avail an amnesty come within the tax net. He protested that his question remained unanswered. I said, some times, law and morality do not go along. He blinked.
How many countries have launched a tax amnesty? He asked. According to a book, Tax Amnesties, published in 2011, about 41 countries gave tax amnesties, the highest being in Italy, 58 in 100 years. But no tax amnesty given in France, England and America, although some states in the US extended amnesties. In England, on voluntary disclosure, only penalties are waived off. According to the data available, many other countries have also offered amnesties after the Panama Papers. But is it fair to launch amnesties after every couple of years without improving the collection system? He asked. Unless there is an efficient system to properly document the economy without exception, nothing will improve, I replied. A large segment of our society likes to enjoy "above the law" status. All previous efforts of documenting the economy have failed.
I told him that due to the advancement of technology, it is easy now to detect assets. However, vested interests do not permit bold decisions. For the last 40 years, there has been rampant, unchecked an unlimited corruption at all levels. Connections, nepotism, approach and the culture of sifarish (even by the highest) and the typical red-tape culture are the main problems of Pakistan. How can the Prime Minister justify, many in his army of Ministers, advisers and special assistants in his Cabinet when the country's economy is in ICU? The life-style and culture in Government offices has not changed at all. The Prime Minister has to come out of his vision of a 'cricket team and Captain'. Government is a science and policies are to be based on data, analyses and objectives. Changing players will not win him success. A minister who is unable to run one ministry as he lacks 'something' according to PM, how can he be given another equally important portfolio?
Last amnesty was launched only a year ago. It had the backing of judiciary too. This time around, it might be challenged on several grounds. It is time to make hard decisions, not by further burdening the poor but by taxing the rich and landed classes and by holding them accountable without exception. Son, only that way, will you breathe freely in a truly independent and democratic Pakistan and compete with others, I told him. It is not an age of miracles, I repeated my favourite line.