The non- filers club
The buzz in the offices of the Federal Board of Revenue is that another tax amnesty scheme is in the pipeline – this time just for traders. This continues the now regular practice of announcing new tax amnesties after the deadline for submission of taxes. Each year, the practice casts doubts over the government’s threats of nabbing non-tax filers by offering new incentives to them. This year’s tax amnesty policy is geared towards appeasing both the IMF and traders, but unfortunately gives the impression of giving a clean chit to those who sell smuggled goods.
The sale of smuggled goods mostly goes on without documentation and it is clear that the government has neither the will nor the ability to check the undocumented economy until those operating it give themselves up on their own accord. Despite taking on the key constituency of the PML-N this year by announcing a withholding tax on the bank transactions of non-filers, there seems to have been little progress in terms of getting traders to file their tax returns. Under the proposed tax exemption scheme, the government has decided to exempt traders from tax audits for at least three years.
The policy proposes not to audit the tax returns of traders who continue to increase their tax returns by 25 percent each year. De facto, the policy means traders will be allowed to declare hidden assets and bank accounts over the course of three years, whitening their black money without any penalty.
The government believes that its strategy of increasing the cost of doing undocumented business will force traders to become filers, and the tax exemption policy would be a good way of incentivising them to join the filers club. A new law is already in the offing to control benami bank accounts as the government tries to use a carrotand-stick strategy to force traders into filing tax returns. Turnover tax will also be reduced from one percent to 0.25 per cent. The trouble is that the tax amnesty scheme casts doubts on the effectiveness of the 0.3 per cent withholding tax on bank transactions on reigning traders into the tax bracket.
The policy of offering tax amnesties is one that has been tried, tested and failed. How the proposed exemption is going to do any better than earlier amnesties is anyone’s guess. The government would be well-advised to focus on penalising non-filers than offering them incentives every year. This undermines its own credibility and seriousness in ensuring that tax filing continues to increase.