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Omer Zaheer Meer,
CFA (USA), CPFA (UK), FCCA (UK), ACA (ICAEW – UK), AMLE (UK)
With the deadline for declaring undisclosed assets, sales and expenditures under the Asset Declaration Ordinance, 2019 (commonly referred to as Tax Amnesty scheme) being over, it’s time to analyze the results, experiences during the process and the follow-up required.
Asset Declaration Ordinance, 2019 was promulgated on 14th May 2019. The stated aim of the initiative was to bring new people, previously unregistered, within the tax-net voluntarily. The initial response just like the 2018 Tax Amnesty scheme was lukewarm, perhaps owing to both the lack of clarity and the Ramadan and Eid festivities.
Initiatives that showed intent
Thankfully, following our advice, the concerned quarters ran public information campaigns and announced that they had successfully integrated databases of various authorities in the country and now also possessed the information gained via OECD multilateral convention about Pakistani residents’ offshore accounts and are further strengthening the mechanism to launch a compliance drive immediately following the amnesty. An adjudication authority for enforcement of The Benami Transactions (Prohibition) Act, 2017. This, after a lapse of almost two years since the law came into being, signaled the seriousness of the government for enforcement action.
The scheme, however, really took off in the last ten days of June 2019 with the seriousness of the Government in enforcement becoming even more clearer and the arrests of top political figures by NAB and stringent sentence in corruption case of ex bureaucrat by the Supreme Court of Pakistan sending strong messages.
“The promised enforcement action coupled with structural reforms to eliminate taxpayers’ harassment and to rationalize the tax system should be undertaken. Without these measures, this scheme would be remembered as just another one in the history of the amnesties launched in Pakistan. However, with the right approach and actions this can become the turning point for the taxation compliance culture in Pakistan”
Moves that backfired
NADRA and FBR then tried to further shore up these efforts by launching their databases. NADRA launched its database first with initially a fee of Rs. 500 to access the records of a person held by NADRA. Unfortunately, it was a disaster due to the lack of data and the people were taken aback that if this was the data held by the authorities then nothing much has changed. The move backfired big time. Many people started talking of taking a “risk” believing that the claims are a façade.
Next came the FBR database, free to access. The quality of data was better than NADRA’s database but was still very weak. However, FBR atleast did the sensible thing of posting a message that it was not a complete profile and that the details were still being populated from the database. A rumor was also spread claiming that whoever logged in to the databases would be recorded and followed up by the FBR. This negativity infact saved the day with people starting to avoid checking their profiles and simply preferring to avail the scheme to streamline their affairs.
Experiences and Challenges
Despite these setbacks, most of the people, including those belonging to the powerful segments as retired military officials, bureaucrats, judges, journalists, e.t.c. were flocking to avail the scheme. Just a clarification that the bar on Government employees’ being excluded from the scheme was for those currently serving or retired within the last 10 years.
With the results showing healthy signs and uniform demands of an extension from all professionals, tax practitioners, legal fraternity, chartered and chartered certified accountants, businessmen, e.t.c., the Government did the best it could in the face of the IMF pre-conditionality of no Amnesty scheme during their program, which was an extension of 3 days, till 3rd July 2019. The response erupted!
People were literally running from pillar to post to avail the scheme in the last few days which led to regular breakdown of the online system of FBR (IRIS). With extreme load on the last day, the system constantly got choked. Furthermore, a confusion led to the rumors of the systems being partially shutdown at 5 PM on 3rd July 2019 instead of the usual tacit understanding of the English calendar’s end of day at 11:59 PM, in line with the past practices of the FBR. This led to atleast 6,000 applications of the already paid tax being stuck in the system with tens of thousands not being able to submit. Mr. Shabbar Zaidi, the FBR Chairman, allowed the processing of the former while the fate of the latter remained unclear to this moment.
Despite all the challenges, the scheme became the most successful in terms of the numbers availing the scheme and the new tax registrations being issues. At the time of publication, 137,000 people had availed the scheme compared to 84,000 over a much larger duration in the 2018 amnesty scheme. Out of the 137,000, almost 100,000 were new tax registrations. With the stuck cases being cleared, the number is expected to grow from 137,000 to closer to 150,000. Almost $ 20 billion worth of previously undisclosed assets were declared. However, the tax collection was less compared to the 2018 scheme owing to the low rates of this scheme (1.5% – 4% for most asset classes) compared to the last one’s 5%.
The challenges faced during this scheme should be studied, and lessons learned for the future particularly about the capacity building of the state institutions both in terms of the human resource and the technology. The promised enforcement action coupled with structural reforms to eliminate taxpayers’ harassment and rationalize the tax system should be undertaken. Without these measures, this scheme would be remembered as just another one in the history of the amnesties launched in Pakistan. However, with the right approach and actions this can become the turning point for the taxation compliance culture in Pakistan.
The writer is a leading economist and tax expert who holds five top professional finance, investment and accountancy qualifications CFA (USA), CPFA (UK), FCCA (UK), CA (ICAEW, UK) & Anti-Money Laundering Specialization along-with substantial experience and represents Pakistan on Global Tax Forum while sitting on the boards of several think-tanks. His profile can be accessed at: https://omerzaheermeer.wordpress.com/about