Prime Minister Shahid Khaqan Abbasi is set to introduce reforms to the tax structure of Pakistan, with electing a new Federal Minister to ensure implementation of the tax agenda, and with the introduction of an amnesty scheme. According to the premier, the government would announce a one- time tax amnesty scheme , while special measures would be taken to enhance tax collection and widen tax base.

These reforms are intended to encourage Pakistanis to declare their foreign assets and reduce tax rates to expand the tax base, in order to bring wealthy individuals into the tax net and for an easier mechanism to regulate foreign assets purchased abroad. The cuts in tax rates would be likely through measures such as lowering tax slabs for individual and corporate taxpayers. The loss in revenue by the tax cuts could be balanced by the addition of more tax payers into the tax network.

The intention behind such a scheme is good one. The idea is inspired by the Indonesian model, whose amnesty scheme to attract people to declare their foreign assets, which was successful bringing $30-40 billion into the tax circulation. This scheme is aimed to uplift those people to declare their assets, which they are legally obliged to anyway, without a penalty, thus bringing more people into the tax network of Pakistan, a beneficial move in the long-term.

The benefit of such a scheme thus is that it allows a legal route for the wealthy individuals and their assets to be introduced into the tax stream, and places them on the government’s record, so for future purposes, individuals and corporations will have no choice but to abide by the government’s game. However, our government has in the recent past implemented such schemes for regular tax players within Pakistan, and those have not really been successful. Even with the introduction of tax cuts, individuals and corporations who have invested abroad have always found ways to skirt the system, and manage to have their cake and eat it too, at the expense of the loss of our tax revenue, which takes its toll on the local tax-paying population. Amnesty schemes have often served as a method to whiten unaccounted-for cash and perpetuates the cycle where people wait for the “next-time” amnesty scheme.

Thus, we must introduce this scheme with diligence and prudence. A better alternative, according to a study conducted by LUMS law students, would be simplifying the process of filing for taxes and making the process more tax-payer friendly.