Exponential Growth in Tax Amnesties to Delinquents
By Masood H Kizilbash
Islamabad, Pakistan
Pakistan is presently a living spectacle of the grant of all types of tax amnesties to the rich delinquents. Its belated cognizance by the Supreme Court on 14th March, 2018 came in the case of illegal flight of tainted money and acquisition of assets abroad by Pakistanis following announcement of the intentions of the government to offer foreign assets amnesty scheme.
The government has been notifying one scheme after another for tax evaders during the last four years (1913-1917). These included an amnesty scheme for non-duty paid vehicles in June, 2013; a tax amnesty scheme for new investors in Greenfield industries in December, 2013; a tax amnesty scheme for non-filers on 1st January, 2016 and another tax amnesty scheme for property owners in November, 2016. The tax amnesties were aimed at providing a blanket exemption to the culprits in flagrant violation of Foreign Exchange Act, 2002, National Accountability Act, 1999, Companies Act, 1984 and Federal Investigation Act, 1974.
The exemptions were provided in the backdrop of lowest tax-to-GDP ratio of less than 10 percent and yawning fiscal deficit, being made good from the public borrowings raised domestically and internationally to reach the level of 63.5 percent of GDP as at end-December, 2017 in terms of original definition of public debt in the Fiscal Responsibility and Debt Limitation Act, 2005. This ratio was higher than the outer limit of public debt at 60 percent of GDP. As there had been a continuous violation of the Act under the original definition, the government re-worded the definition of public debt through an amendment in June, 2017.
The flight of capital is a purely economic phenomenon. It has two broad dimensions. The first springs from fear due to economic and political uncertainty in the home country. The second arises from illegitimate activities such as tax evasion and graft, commissions and kick-backs on public contracts by the officials and the ruling elite. The Panama Papers in April, 2016 and Paradise Papers exposed the extent of both types of flight of capital to the offshore small countries/jurisdictions with low and nil taxation. The veil of confidentiality and secrecy regarding wealth and assets under a very liberal legal environment facilitated incorporation or registration of the companies in these jurisdictions without undertaking any meaningful commercial or industrial activity. The funds in these companies were funneled to the banks and investment in the moveable and immoveable properties in the main-lands.
The transfer of the funds continued for decades within the knowledge of the governments in the mainlands for its beneficial effects on their economies. Some palliative measures included founding of the Financial Task Force - an inter-governmental Organization - in 1989, The International Monetary Fund’s initiative in 2000, the United Nations Convention against corruption in December, 2005 and the World Bank’s Stolen Asset Recovery Initiative in September, 2007. Surprisingly, the onus under these initiatives was placed on the Third World countries and not on the recipient countries.
The stepped-up terrorism in Europe and the United Kingdom forced these countries to investigate the sources of financing of the terrorist activities. Once it was established that the funds generated from the offshore companies and sneaked into their main-lands were used to generate a wave of mayhem, an Anti-corruption Summit held in London in May, 2016 adopted a 32-Point agenda to “substantially reduce corruption and bribery in all their forms” and “strengthen the recovery and return of stolen assets.” As a follow–up to the adoption of the measures envisaged in the agenda, The European Union tightened the already existing rules and put them into effect on 26th June, 2017 to tackle money laundering, tax avoidance and terrorism financing. The government of the United Kingdom followed the EU and put into effect the Criminal Finance Act on 30th September, 2017. The Act empowers seizure of property and assets of politically exposed persons from outside the European Economic Area or someone reasonably suspected of involvement in various crimes and cannot establish acquisition of assets from legal money. The burden of proof for acquisition of assets from legitimate sources of the funds will squarely lie on the accused.”
A u turn in the international environment on the question of the flight of capital and money laundering has created a panic amongst Pakistani delinquents who no longer find safe havens abroad to stash their wealth and assets. Therefore, there is no wonder that the Prime Minister and his Advisor for Finance have in recent days come up with the proposed foreign assets amnesty scheme with the argument that it will help the country stand on its feet in the near-fiscal collapse and debt retirement - a situation created by the government itself.
One wonders whether the Rule of Law will prevail or the citizens of Pakistan will continue to bleed!
(The writer served as Joint Chief Economist in the Planning Commission of Pakistan. He is the author of several books including “Pakistan under Siege” recently published. e-mail:- masood_ Kizilbash@hotmail.com)
Back to Pakistanlink Homepage
