Tax amnesty schemes have never really yielded significant results in terms of improving tax compliance in the country. Despite this historical fact, successive governments have attempted to offer olive branches to businesses and individuals to coax them to pay their dues.
The latest such attempt was initiated by Finance Ministry at the beginning of this year. The government’s carrot and stick strategy were based on a tax on bank transactions for non-filers, along with an amnesty scheme that promises reduced tax liability on the declaration of income; its source and quantum. The scheme was announced amid hopes that this time, the scheme would work and that hundreds of thousands of traders would use the opportunity to enter the documented fold.
Yet months after the announcement of the scheme, it is evident that it has only attracted a small fraction of the initially envisioned tally of new tax filers. The dismal response has drawn the ire of irate parliamentarians with even some PML-N legislators expressing displeasure over its poor showing. However, various representatives of the business community continue to herald the scheme as a game changer.
Recently, the All Pakistan Anjuman-i-Tajran appealed for yet another extension of the scheme. APAT President Ajmal Baloch said that the scheme has been fine-tuned through months of negotiations between stakeholders and now that differences have been ironed out, the authorities should facilitate more time for prospective tax filers. He contends that the terms of the deal are attractive for traders and that an extension in the deadline will facilitate a comprehensive awareness drive that can convince many to take advantage of the scheme.
However, many remain unconvinced over the intentions of the trading community. Speaking to BR Research, former president of Lahore Chamber of Commerce and Industry, Ijaz Mumtaz asserted that despite name-sake negotiations with the government, it is clear that traders are unwilling to pay due taxes. He rebuffed the notion that participation in the scheme has been low due to confusion over terms of the amnesty scheme and also contended that further extension of the scheme will not lead to a significant jump in the number of tax filers.
This mistrust is rooted in previous episodes where attempts to rein in the trading sector to the tax net were made by violent street protests, shutter down strikes and political jostling. The attempted implementation of the Reformed General Sales Tax (RGST) by the previous government met a premature fate, as did similar attempts by preceding governments. Little wonder then that other businesses that are already in the tax net, look at the traders with some suspicion.
Yet the government has already committed itself to this strategy and it would make no sense to jump out of the saddle, mid-race. So should the Ministry of Finance maneuver for another month-long extension in the amnesty scheme? Not quite. Reversion of the tax on bank transactions to 0.6 percent has been lauded by most tax experts and economists as a sound move to squeeze the non-filers. This move is helping to shore up revenues and exert pressure on non-filers; so it should remain in place.
On the other hand, representatives of traders such as APAT contend that they need time to carry out nation-wide drives among their members to get them onboard with the amnesty scheme.
They assert that such efforts require time and planning. Hence it may be suggested that the government should offer an extension of 2-3 months in the deadline against a comprehensive plan laid out by representative bodies of traders which spells out their plan to mobilize support for the scheme. The Finance Ministry has already played its hand; now it only makes sense to see the bet though.
First published: March 29, 2016.
