COMMENT
Claiming amnesty, regularising the irregular, promulgating Presidential Ordinances to provide cover for actions that are against the law, seems to be the rules of procedure in Pakistan. Quite surprisingly, nowhere in the world can one imagine to get away with embezzlement, money laundering, murder, terrorism, and tax evasion, etc, whether you are a common man or an occupant of the power corridor.
Close to celebrating its 69 years of independence, we indeed have become sovereign in some actions, if not all. Sovereignty is seen in granting pardon to politicians, businessmen, and also bureaucrats for their involvement in actions that were subject to trial, but were not convicted. Whether, it was in the form of an extreme forgiveness through the controversial Non reconciliation Ordinance (NRO) by former President General Musharraf or the various regularisations of irregularities that exists in government departments.
It is now the Finance Act 2016 that is causing uproar in the real estate sector of the country, and forcing the finance divas of the present government to carve out a way, whereby they are granted an amnesty for approximately Rs7 trillion of black money, which has accumulated in this sector. It is said that the country will experience history; turning this black money white, which may be brought about through a Presidential Ordinance or in the form of a bill in the parliament.
There is no doubt that the president, according to the Constitution has the powers to promulgate ordinances, and indeed the Parliament too is supreme in legislation; but is this really a healthy way of running the affairs of the country?
Increasing the tax net for any government in Pakistan has been the most difficult task. Usually, it is either the sales tax or the salaried class which take the burden of an increase every year. This is because, those who can bring the change are either part of the viscous cycle or their partners are involved in tax evasions, leaving all such sectors untouched.
No matter how hard the debate can get, the agriculture sector in Pakistan is still a holy cow, claims Ali Raheem, Economist.
Recently, an amendment in Section 68 of the Income Tax Ordinance 2001 brought through the Finance Act 2016 aims to streamline the real estate investments. It was to do away with the old method of evaluating property rates set by the provincial government. The new mechanism puts the investors to get their property reevaluated through the valuers of the State Bank of Pakistan.
Until this amendment, real estate transactions had been under invoiced. The widening gap between the actual value of an immovable property against its paper price, not only increased the informal economy but also allowed investors to evade income tax.
The Income tax department until 2008 accepted the collector’s rate of the provincial government for open plots and built up properties. This led to increasing corruption at the income tax department, as they too were aware of how the investors were under invoicing.
“So, it was on the cards, that this needs to be streamlined as the real estate sector was becoming a safe haven for parking black money,” said Ali Raheem. “The capital is ready to fly out if the demands are not met,” said Hanif Gauhar, Chairman Abaad, adding that in the last 6 months, Rs86 billion have been invested in the real estate sector in Dubai, UAE. “If the government doesn’t work this out, it will certainly decrease investment in the country.”
Meanwhile, the back and forth meetings between the stakeholders and the government-appointed team are trying hard to carve out some common ground for the new mechanism.
This is indeed not the first time that the present government is hoping to strike a deal. It has been observed in the past too, that amnesty schemes are brought in. Such actions only indicate the half hearted attempt of financial managers to straighten up the economy.
The approval of tax amnesty scheme for traders by the Pakistani Parliament, earlier this year, is one such example, whereby the traders were offered to legalise their hidden working capital worth up to Rs50 million by paying only one percent of their declared amount in income tax.
The embarrassing outcome of this scheme, which aimed at bringing at least a million traders in the net, compels the economic managers of Sharif’s cabinet to take action against the tax evaders. The present regime faced another such embarrassment when Prime Minister Sharif had offered the industrialists in November 2013, an amnesty towards legalising their black money, in order to increase investment and tax returns.
Such is the fate of any decisions to broaden the tax net in Pakistan. It is because the ruling elites are industrialists, traders, agriculturists, and businessmen, who are lacking the moral move.
On the other hand, local contractors in Karachi are optimistic of a solution, as they say it is in the interest of the bureaucracy, politicians, and other ruling elites, as they are the major investors in the real estate sector.
Many economists believe that the country’s local economy’s 80 percent portion is black or informal, making the people rich and the government poor.
The present ambition of the government of taxing the real estate sector too is not a promising situation in terms of bringing the untaxed into the net. Had this been the aim, some other means should have been worked out to get information on the income of the investors. It is safe to say, that there are only a handful of investors in the country, and gaining information on the means of their income should not be such a difficult task.
Under the new worked out mechanism, one can easily understand, that it will be actually the buyer who will face the tax burden. The so called amnesty will not bring the desired result. Instead, it will lead to more soaring prices of immovable properties, which will be out of reach for the common man.
This can be cited from the outcome of the various meetings held between the government and the stakeholders. The issue that that’s undecided is only of three cities, namely Islamabad, Lahore, and Karachi, where the established builders and developers are making major investments. As it is, the cost of housing in these metropolises is skyrocketing; and with this new action by the government, it will be the common man carrying the new tax burden.
If this is how the state of affairs is to be, question is why in the first place are such actions planned when an amnesty needs to be exercised? Are such moves made to provide safe passages to the people in the parliament or those who are the movers and shakers in the power corridors, who are seen, involved in nearly all irregular actions.
The writer is a broadcast journalist
