Tax 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. It typically expires when some authority begins a tax investigation of the past-due tax. In some cases, legislation extending amnesty also imposes harsher penalties on those who are eligible for amnesty but do not take it.Tax amnesty is one of voluntary compliance strategies to increase tax base and tax revenue. Tax amnesty is different from other voluntary compliance strategies in part where tax amnesty usually waives the taxpayers’ tax liability.
The tax package revolves around five major points:
- CNIC numbers are to be made NTN numbers to monitor tax compliance of all citizens.
- Income tax brackets and percentages are to be revised. Filer must complete tax exemption on annual income up to Rs 1.2 million; maximum percentage of 15% to be levied on income above Rs 4.8 million per annum.
- Undeclared assets held locally or abroad are to be declared after payment of nominal penalties. Those who avail this scheme are to be granted one-time exemption from accountability laws.
- Tax to be collected on all property transactions is to be made uniform (1 percent federal and 1 percent provincial tax). Government will have the right to purchase any property by paying 100% over and above its declared value within six months of its registration.
- And last but not the least, the government has right to monitor citizens financial records and issue notices if they find evidence of tax evasion then penalties are to be decided.
It is a very positive and bold step taken by the previous government and will have outstanding results in the future. Usually everyone holding black money will either keep it in cash or will get it white by using the usual telegraphic transfer procedure by paying 5 to 7 percent on the said amount. The Government reduced the penalty to only 5% thus encouraging all who have undeclared money to become part of Tax net. So let’s assume you have 200 millions undeclared assets, you can simply pay 10 million and declare all your money to the Government for future transactions and not only you become a filer but you also never have to worry about your undeclared money anymore. The scheme was to end on July 30, 2018 but the date was extended to July 31, 2018.
The State Bank of Pakistan gives statement that $300 million tax has been fetched under the tax amnesty scheme launched by the previous government in April this year for whitening their undisclosed assets held overseas. The International Monetary Fund (IMF) has assessed Pakistan’s gross external financing needs at a record $27 billion for the next fiscal year, but warned that arranging the financing at favorable rates will now be a challenge due to risks to the country’s debt sustainability.
In its post-program monitoring report, the IMF also forecast that due to additional borrowings, Pakistan’s external debt would jump to $103.4 billion by June 2019, up from this June’s projected level of $93.3 billion. The Pakistan Economy Watch (PEW) said the tax amnesty scheme has not been designed to benefit tax dodgers but orchestrated to save the country from another loan by IMF on harsh conditions.
Most of the economic issues in Pakistan have arisen from the unpaid taxes as the country’s budget goes above the annual income. Fearing the usurpers in the country, people tend to keep their assets abroad, out of the reach of the government. The tax amnesty scheme is a great way for non-tax payers to get rid of their liabilities and to declare their assets as well as income to avoid future investigations expected in the next government. It also provides a platform to bring the much needed wealth back to the government to avoid taking more loans from the foreign world.
FBR should be appreciated by prime minister of Pakistan because these types of schemes are beneficiary for the better growth and maximum circulation of rupee in to the markets and abroad. So I do recommend that if you have undeclared assets this may be the right time to declare it. Most importantly this scheme is not applicable to people holding public service offices, their spouses and dependent children. Therefore it is basically meant to bring the culture of taxation among general citizens, businessmen and industrialists. Moreover the tax collection should be used in proper manner and should be able to get enhanced by accountability.