In view of the disappointing outcome of repeated tax amnesties in Pakistan and their negative impact on tax compliance, a reappraisal of past experiences of amnesties is required. Core policy and administrative weaknesses need to be identified which lead to the need for tax amnesties. Similarly, strategies need to be formulated to address the core problems, and to find alternative policies that could lead to sustainable improvements in tax compliance. The following policy interventions are recommended:
- Tax amnesties should not be treated as a substitute of improving the tax system structure and improving capacity of the tax administration. Policy makers would do well to avoid temptations of easy fixes through amnesties that produce some short term revenue gains at the cost of long term efforts to reform tax policy and modernize tax administration.
- There should be a policy shift towards removal of grounds that justify introduction of tax amnesties. Efforts leading to systematic documentation of economy to control tax evasion and bridge tax gap should be given precedence over resort to tax amnesties.
- No stand-alone tax amnesty scheme should be introduced as stand-alone schemes signal lack of political will and weakness of tax administration. Tax amnesties, if considered necessary for revenue enhancement, should be succeeded by structural reform measures aimed at strengthening of tax administrations capacity to cope with tax evasion.
- Where the government decides to introduce a tax amnesty scheme it should be ensured that the tax evaders are not rewarded by being offered a lower effective tax rate than law abiding taxpayers.
- Instead of repeatedly launching tax amnesties, the government should keep a permanent window open for the tax evaders to join the mainstream taxation without fear of prosecution or penal action. This may include establishing a permanent voluntary disclosure mechanism where the tax evaders may voluntarily offer to pay the tax evaded along with interest at bank rate in exchange of immunity from prosecution and penalty.
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