Tax amnesty is defines as
“grant of an opportunity to a specific class of society to declare their
undeclared assets by payment of a meagre amount of tax in addition to grant of
immunity from default surcharge, penalties and prosecution”. It is introduced by
the governments on the slogan of increasing tax revenues, tapping the informal
economy and was therefore, offered in several European countries in addition to
Malaysia, Canada, USA, India and Pakistan.
The history of Pakistan is witness to grant of tax amnesties in various decades
with the slogan of improving the tax to GDP ratio, tapping the informal economy,
increasing tax revenues but is seen by the complaint tax payers as an incentive
for being non-compliant. Interestingly most of the amnesties in Pakistan were
announced before general elections and were reckoned by the complaint taxpayers
as an attempt to clean the ill-gotten money during their regime. No country in
the world is as generous as Pakistan in the grant of tax amnesties for the
People successfully managed to transfer their ill-gotten money to offshore
destinations from Pakistan due to weak taxation system, economic protection act,
1992 and other reasons and purchased offshore assets without declaring them in
their tax returns. Consequent upon becoming the member of the OECD Pakistan
started receiving data of such resident Pakistanis from different countries.
Panama and Paradise Leaks revealed accumulation of offshore assets by Pakistanis
reflecting flaws in the enforcement regime of the country and ultimately led to
the disqualification of the sitting Prime Minister of Pakistan.
The Foreign tax amnesty scheme 2018 was announced by the government to give an
opportunity to the tax dodgers to declare their offshore assets. Many resident
Pakistanis having offshore assets became part of the formal economy by availing
the scheme which lasted till August 2018.
Retrieval of undeclared offshore assets was one of the points of the Pakistan
Tehreeki Insaf manifesto during their election campaign. The Imran Khan led
government created asset recovery unit in the prime minister secretariat and was
seen sincerely and aggressively pursuing the task.
The Federal Board of Revenue established the Automatic Exchange of Information (AEOI)
Zones in Karachi, Lahore, Islamabad, Multan, Quetta and Peshawar for initiating
and finalizing proceedings against such tax dodgers. The zones were shared with
information of resident Pakistanis having offshore assets. These zones were seen
as a beacon of light for the almost crippled Federal Board of Revenue and the
economy of Pakistan. It was expected that the government would give special
powers and resources to the zones for effectively checking the offshore
The government through First Finance amendment Bill 2018 introduced section 116
A in the Income Tax Ordinance, 2001 for declaring offshore assets in addition to
amendment in section 111 of the Income Tax Ordinance, 2001 by virtue of which
the undeclared assets would be taxed in the tax year preceding the tax year of
the year of discovery. It means that information received in tax year 2019 in
respect of offshore assets would be taxed in tax year 2018.
The AEOI Zones hit operations with issuing notices to offshore assets holders of
Panama, Paradise, Dubai, United Kingdom and CRS. The zones had the support of
the Supreme Court of Pakistan in Dubai cases where remarkable recoveries were
made. The compliance ratio in the proceedings initiated by the zones was
The concept of AEOI reckoned by many as a lifeline for the economy of Pakistan
since its inception was marred by bureaucratic hurdles. It could be heard
requesting for provision of adequate human resource, budget for repairs and
basic logistics required for taxation of the undeclared offshore assets.
The government through Second Finance Amendment Bill introduced section 230 E in
the Income Tax Ordinance, 2001 by creating the Directorate General of
International Tax Operations without mentioning the names of the functionaries
in the authorities under the Income Tax Ordinance in addition to restricting the
scope of the proceedings to ex-party. This amendment paralyzed the AEOI Zones
already crippled due to bureaucratic hurdles.
Simultaneously the Federal Board of Revenue in an unprecedented move announced
extension of the date of filing of tax returns for tax year 2018 to April 30th
2019. This move can be coined as the final nail in the coffin of the AEOI zones
for taxation of the undeclared offshore assets as its mandate was to amend the
tax returns for tax year 2018.
The effort of the bureaucracy within and outside the Federal Board of Revenue
successfully managed to escape the tax dodgers from the wrath of law frustrating
the premier over his efforts for retrieving the ill-gotten offshore assets
resultantly paving way for another amnesty.
It is heard that the proposed amnesty scheme is inclusive of the Benami Assets
which is an offence under the Pakistan Penal Code and the Anti-Money Laundering
Act. No country in the civilized world has given amnesty on benami assets.
The future of an economically viable Pakistan lies in the elimination of red
tapism, rule of law and not tax amnesties.
The Write is a Pakistani Journalist Currently Based in Malaysia.