“Moralists should address their sermons to the legislators, and not to individuals, because it is in the order of possible things that a virtuous and enlightened man may have the power to make reasonable laws, and it is not in human nature for all the rich men of a country to renounce through virtue procuring for themselves for money, the enjoyments of pleasure or vanity” – Voltaire’s Philosophical Dictionary 1764
While our government and parliamentarians during the last many years have been busy in extending amnesty schemes, immunities and concessions to tax evaders to decriminalise their illegally-gotten wealth and avoid all kinds of probes and punishments under various laws, the world governments showed commitment to take tax cheats to task. The latest move came from Hungary’s government on 16th January 2013 when Prime Minister’s chief of staff Janos Lazar expressed determination to identify and tax all wealth held by Hungarians in foreign – mostly Swiss – banks. Lazar announced that “Hungary now wants to tax all holdings in foreign deposits at an average 35 percent rate.” On the contrary, our financial wizards are offering unprecedented tax amnesty just at the rate of 1%! Lazar said that his country would ask Switzerland first to disclose all data pertaining to bank accounts of Hungarian citizens in Swiss banks. Our government has taken no such step till today though we have written about it in these columns more than a dozen times during the last six months.
Like Pakistan, Hungary’s government has been struggling to improve tax collection as it works to keep its budget deficit under the European Union limit of 3 percent of gross domestic product (GDP). So it has been hostile to offshore holdings since it took power in 2010. On the contrary our government since 2008 encouraged flight of capital and gave unprecedented tax concessions to the tax evaders. Our rulers have shown total apathy towards improving tax collection, resultantly fiscal deficit is expected to jump to 7.5% of GDP this year against the target of 4.5%. Instead of meeting revenue target of Rs 2,381 billion fixed at the time of budget for the current fiscal year, Federal Board of Revenue (FBR) has already made request for downward revision to Rs 2,231 billion and that too is made conditional to passing of two obnoxious amnesty schemes by the Parliament – it is nothing but naked blackmailing by the government, putting pressure on the elected representatives that if these are not passed the country would face economic collapse. It is not understandable why the government is pressing for these while the National Assembly would be dissolved by 10th March 2013, if not earlier.
The Hungarian government citing international comparisons and intelligence sources has estimated the total holding of Hungarians in foreign, mostly Swiss banks at, at least one trillion forints (USD 4.53 billion) and perhaps as much as 2 trillion. Our government has not made any effort to estimate quantum of money lying abroad – no information from the countries having tax treaties with Pakistan has been sought till today. This is not a case of apathy or bad governance, but a wilful criminal act – instead of taking action against rent-seekers and unlawful outflows, the government has proposed a legal cover to tax evaders and persons engaged in organised crimes to get their dirty money laundered through two amnesty schemes.
The FBR, in a meeting of Board-in-Council, held on 26th September 2012, approved two amnesty schemes aimed at facilitating tax evaders and plunderers of national wealth. Prime Minister Raja Pervez Ashraf, on 5th October 2012, approved the schemes “allowing legalising of untaxed assets, both local and foreign”. After approval from Cabinet, the government on 17th December 2012 placed Tax Laws (Amendment) Bill, 2012 [“the Bill”] before the Senate and National Assembly. On 4th January 2013, FBR included major features of the amnesty schemes in the Bill as recommended by the Senate Standing Committee on Finance. The Bill is presently lying with the National Assembly. Insiders have revealed that all the parties want its passage, without any meaningful debate, during the current session of assembly though opposition parties and MQM may ostensibly show “resistance” by walking out giving free hand to the government to adopt the Bill – they just want a face saving, otherwise are equally keen for adopting the Bill.
Proposed ‘Tax Registration Enforcement Initiative’ scheme says that where a person pays ‘registration tax’, he shall be entitled to incorporate income/assets/expenses with a declared value up to Rs 5 million in his books of accounts. He shall not be liable to any further tax, charge, levy, penalty or prosecution under the Income Tax Ordinance, 2001 in respect of his income for any of the tax years prior to the tax year in which he has paid the registration tax. The declaration shall remain confidential – no action even could be taken by Federal Investigation Agency (FIA) or National Accountability Bureau (NAB) or Securities and Exchange Commission of Pakistan (SECP). Persons availing this scheme, however, shall be obliged to file returns for the succeeding tax year and subsequent three consecutive tax years. If the beneficiary fails, without reasonable cause, to file return for the succeeding tax year and the subsequent three consecutive years, the immunities granted shall automatically stand withdrawn.
Second amnesty scheme titled ‘Investment Tax’ provides that if any unregistered non-filer or registered non-filer desires to declare undisclosed income/assets/expenditure with declared value exceeding Rs 5 million, he shall be required to pay in addition to registration tax, ‘investment tax’ on the declared value of the assets/income/expenditure exceeding Rs 5 million at one percent during first month, 1.25 percent in second month and 1.5 percent in the third month of the promulgation of the scheme. An existing taxpayer desiring to declare undisclosed income/assets/expenditure up to the declared value of Rs 5 million shall file a declaration under the scheme made by payment of token investment tax of Rs 100 and an existing taxpayer who desires to declare undisclosed income/assets/expenditure with a declared value exceeding Rs 5 million shall pay investment tax as provided, thereafter, he would be entitled to incorporate income/assets/expenses declared in his books of accounts.
The Senate Standing Committee on Finance, though cleared Tax Laws (Amendments) Bill 2012 with a thin majority vote on 4th January 2013, adjudged it “highly controversial”, violating Article 73 and Article 25 of the Constitution. The Chairperson, Nasreen Jalil, noted with concern motives behind overriding National Accountability Bureau Ordinance 1999, Federal Investigation Agency Act, 1974, Compliance Ordinance 1984 and other laws through this Money Bill. The aim of introducing the Bill, she said, was to whiten the black money earned through illegal means. “Poor people are paying their taxes and rich class has been allowed to whiten their black money under the garb of the amnesty scheme,” she regrettably noted.
The government at the close of its tenure wants to appease a few big tax evaders who have promised to give billions during the next election campaign. They say first allow us to whiten our dirty money and then claim your due share for winning elections. These schemes are meant for safeguarding money power – the mafias that are now controlling and corrupting our State institutions.
While FBR is portraying the proposed amnesty schemes as “best practices”, there is a widespread criticism from all walks of life. FBR claims that there are about 2.3 million rich people who do not even have National Tax Numbers (NTNs). At present, there are 3.2 million NTN holders in the country, whereas only 1.4 million file tax returns or prescribed statements. According to Nadra, 1.611 million people travel abroad frequently, 0.584 million have multiple bank accounts, 56,451 live in posh localities, 19,141 own luxury vehicles, 66,736 pay more than Rs 100,000 per month in utility bills, 13,201 rich have prohibited and non-prohibited arms licences and move along with a large convoy of vehicles and 25,133 are doctors, engineers and other professionals. When we can recover at least Rs 3 trillion from these ‘super rich’ alone why is FBR projecting figure of just Rs 100-120 billion from amnesty schemes? Why should national exchequer suffer by getting peanuts from these super rich tax cheats due to failures of FBR? What is the rationale of absolving them from criminal proceedings under special laws related to corrupt practices and money laundering?
It is baffling as to why FBR has shown inability to tax the ‘super rich’ when it claims to have their complete data. Why to facilitate them to whiten their undisclosed and untaxed wealth by just paying 1% of declare value – they should surrender at least 50% of untaxed assets to the State as tax, fine and penalty as condonation of prosecution for tax evasion. This is what happened in other parts of the world when they came to know that their citizens were hiding money abroad. Perpetual amnesty schemes shatter the faith of the common man in the entire system. It is time that instead of giving any further tax amnesty, the untaxed income should be taxed at the applicable rate, stern action should be taken against tax evaders and Parliament must pass asset-seizure legislation for confiscation of all un-taxed assets and seeking international co-operation for bringing back looted money lying off shore. This is what the rest of the world is doing rather than appeasing and protecting the corrupt and criminal, tax cheats and money launderers.
The present Parliament – about 70% of its members are accused of not filing tax returns for tax year 2011 – if passes the proposed tax amnesty bill will not only confirm its guilt of tax avoidance but also testify that is a close ally of tax evaders and rent-seekers. History will never forgive them for this crime as the nation will bleed heavily for years to come. By extending a helping hand to the criminals, tax evaders and looters of national wealth in the form of ‘Financial NRO’, the legislators will also attract the provisions of Article 62 and 63 of the Constitution.
(The writers, tax advisers and author of many books, are visiting Professors at Lahore University of Management Sciences)Huzaima Bukhari and Dr. Ikramul Haq, "Allying with tax evaders," Business recorder. 2013-01-25.