KARACHI - Tax amnesty, currency notes of large denominations and withholding tax regime are detrimental to the economy, said economist Dr Shahid Hasan Siddiqui while talking to The Nation.
He said that the money in circulation as percentage of GDP in Pakistan is already very high. After imposing withholding tax on banking transactions, the growth rate of banks deposits has slowed down as the business community is largely using cash instead of cheques, he added. The government should withdraw currency notes of Rs5000 and prize bonds of Rs40,000 and Rs25000 denominations to discourage cash transaction and boost transactions through cheques, he suggested.
When asked about the India’s move of demonetising currency notes of about fifteen thousand billion Indian rupees, in the denomination of currency notes of Rs500 and Rs1000, Dr Hasan said the claim of curbing corruption through this strategy makes no sense and it is obvious that this decision would not contribute in curbing corruption but would certainly generate few thousand billion rupees as additional tax revenues in next few months, the economist said, arguing that this amount could be used for enhancing India’s GDP growth rate and would also provide an opportunity to the government for allocating additional amounts on social sector and betterment of common man.
This step was taken by the Indian government after the conclusion of Tax Amnesty scheme through which the Indian government offered amnesty to illegal money on payment of 45 percent tax, he added. According to Indian government, black money of rupee equivalent of $9.8 billion was declared and revenues equivalent to $4.4 billion was generated, he said.
He mentioned that the government of Pakistan few months ago announced a Tax Amnesty scheme on payment of only 2 percent tax. He said this scheme proved to be a failure because the black money holders including tax evaders and of income earned through corruption, smuggling, kidnapping for ransom etc were confident that they would remain comfortable in Pakistan even after conclusion of the Tax Amnesty Scheme. It is also significant to note that government of Pakistan has recently amended the Income Tax Ordinance 2001 which has paved way for this Tax Amnesty Scheme for the real estate sector.
Although, under the Tax Amnesty Scheme, amnesty at three percent has been offered to black money holders on purchase of property but the fact of the matter is that this amnesty has been offered at 0.5 percent, he said. There is also no precedence in world for tax amnesty on the real estate sector, he added.
He said the Tax Amnesty in its present form will cause a loss of about one thousand billion rupees to the national exchequer on the one hand while the seller of the property would acquire huge black money. The black money including money acquired through corruption, tax evasion etc by the purchaser of property will thus be provided safe heaven, he added.