India and Pakistan: Tax Incentive Packages Comparison

Comparison of Tax Amnesties schemes between India and Pakistan

3.1     Comparison of Tax amnesty schemes introduced in India and Pakistan

Statistics show that Voluntary Tax Compliance Scheme introduced to provide an incentive for small retailers and traders to get themselves registered in tax net was resulted in a complete failure because of the non-compliant nature of traders and their mistrust in Government assurances.

Tax Amnesty Scheme introduced in 2018 yielded better results than Tax Amnesty Scheme of 2019 in terms of tax revenue as it collected 124 billion Rupees which was almost double than the tax revenue collected in amnesty scheme 2019. This result shows that too frequent and anticipated schemes by tax evaders may not outcome in more collection of taxes and documentation.

Salient features and tax collection of Tax amnesty Schemes introduced in India as discussed in Section-II of this paper also endorses the point of view that recurrent amnesty schemes results in low yield of tax collected from such schemes . However, Income Declaration Scheme 2016 can be termed as a success story with respect to tax revenue collected from the scheme.

A comparison of Tax Amnesty Schemes introduced in Pakistan in the year 2019 with Tax Amnesty Scheme 2016 introduced in India is made in the following table :-

NO DESCRIPTION PAKISTAN INDIA
Demographics Data
1 Total Population (2018) 210 million people 135 million people
2 Tax to GDP Ratio (2018) 13.7 % 15.9%
3 GDP Growth (2018) 5.7% 6.1 %
4 Country Status Developing Country Developing Country
5 Country Location South Asia South Asia
Rules of Tax Amnesty Implementation
1 Time Period  

From 15/5/2019 to 3/7/2019

 

 

From1/6/2016 to 30/9/2016
2 Tax Rate 1 to 5% 30% until 45%
3 Approach Persuasive, diplomatic Law enforcement
4 Types of amnesty General, any kind of taxes Specific, domestic tax fraud (black money)
Results of Tax Amnesty
1 Tax Revenue Collected 67 Billion PKR 640 Billion PKR
2 Participated taxpayers 124,587 taxpayers 64,275 taxpayers

Since Amnesty Schemes are not announced every year, therefore, comparison of two schemes i.e Amnesty Scheme 2019 introduced in Pakistan and Amnesty Scheme 2016 introduced in India has been made in the above table. The results show a clear contrast wherein India collected 640 Billion PKR and Pakistan collected only 67 Billion PKR. Although, in Pakistan tax amnesty scheme rate of tax was merely in the range of 1% to 5% to attract more persons and generate tax revenue, yet Tax amnesty Scheme introduced in India at the tax rate of almost 40% gathered tax revenue of 640 Billion PKR. The size of economies of both countries vary, nevertheless, India collected 10 times more than Pakistan in its tax amnesty which states that Indian tax amnesty was more successful than Pakistani.

Conclusion

Amnesties in Pakistan have been used as a convenient tool to enhance revenue in times of financial constraints but amnesties have never helped improve revenue position significantly. The reason for offering tax amnesties is generally immediate revenue requirements during periods of financial constraints. Amnesties also help repatriate offshore capital and promote domestic investment. Theoretically, tax amnesties may also improve tax compliance. While short term improvement of revenues is achieved as a result of amnesties, it is not easy to measure effectiveness of an amnesty in improving tax compliance. A number of studies conducted on this subject suggest that amnesty schemes are effective in raising tax compliance when they are combined with structural reform measures relating to tax policy and tax administration. Against this the chances of a stand-alone amnesty scheme being successful in raising tax compliance are virtually non-existent. A stand-alone tax amnesty on its own is unlikely to affect the cost-benefit ratio of tax evasion. In fact, tax compliance level can only be significantly raised by increasing the cost of tax evasion on the one hand and reducing its benefits on the other.

It has been evaluated that in Pakistan Tax Amnesty Schemes are introduced if the country is in need of urgent revenue or such schemes are launched under pressure from influential economic sectors. After examining Amnesty Schemes of India and making its comparison with Pakistan shows that a tax amnesty scheme can be effective if it is introduced after making strict enforcement measures so that tax evaders consider it as a real opportunity to avail and have fear of facing the consequences if they keep undeclared income under the carpet. However, in Pakistan too frequent tax amnesty schemes resulted in non-compliant tax culture. Consequently, neither the tax to GDP ratio in Pakistan is improving nor drive for documentation is successful which makes such schemes ineffective.

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