What after July 31 deadline ?
Tuesday, 24 July 2007
M.I. Ali
THE Chairman of the National Board of Revenue (NBR) has assured all concerned in his recent 'live telecast programmes' that the government will not prosecute those who will declare their 'undeclared' money by taking advantage of the facility that has been offered by it (government) for such disclosures by July 31, 2007, upon payment of the normal rate of tax, as is applicable on a case by case basis plus five per cent penalty across the board. Unfortunately there were only a few takers, far below the rush that was expected to queue up to declare their illegal wealth. In all probability, the current offer has drawn the least number of responses from those who were tardy with their tax payments.
This in all probability is a reflection of the independence of a new watchdog body that the government has set up, the Anti-Corruption Commission (ACC). Questions still haunt the minds of many whether the ACC will sit idle and not go after those who disclose their undeclared money by paying the normal rate of tax plus penalty charges. The ACC has already made its intention known that it intends to get all laws necessary enacted, for it to get access to the NBR records.
The current administration is going after the corrupt elements, with enthusiasm. This demands appreciation of all those who want to see a healthy society, having transparency of all political and economic activities. Unfortunately, everything has a price and honesty can be too expensive for a poor country like ours. This is being reflected in our market prices. Corruption, as we do now painfully realise, had, in fact, helped to keep the market prices down. Cost of funds was cheap as no body paid any tax to the government, transportation cost was low as trucks were loaded to more than twice their capacity, nobody worried about warehousing, fire service, environment licences, etc. Thus, even after paying the police and other toll collectors, the prices were lower than they should have been if all the legally mandated requirements were met.
The reality is that our economy has otherwise been built on "black money" for more than thirty five years and going totally white overnight will have its costs. Furthermore, the most important question is: Is there enough white money in the economy to replace the black money overnight? And, will there be enough money left to finance the economic activities of the country after black money holders -- who have been financing a large part of the economic activities since long -- pay the fines and taxes to legalise their, what is commonly known as, black money on real or perceived grounds? Is the worst, in terms of market prices, yet to come? With the spectre of July 31, the date after which the NBR is going to hunt down all holders of undeclared assets, the businessmen be busy doing their normal business or will they be busy finding ways of hiding their money which, in effect, will be withdrawn from the economy?
Contingency plans must be made now to finance the economy after the black money is pulled out by businessmen who were used to operating under the previous relaxed business environment. For the businessmen, after paying taxes to regularise their hitherto undisclosed money, the capital available to them for conducting their business will be reduced by around 40%. Real businessmen do not have idle money, their own money plus loans from banks are usually invested in their businesses. The administration must think how would the businessmen, assuming that they pay the 'overdue' taxes, carry on with their current scale of operations after July 31, 2007 with up to forty per cent less working capital.
The present administration will have to take a decision: will they take upon themselves the responsibility to rid the nation completely of corruption and of corrupt people? Or will they install a foolproof system that will ensure a corruption-free society in future i.e., after the "elected" politicians take over the reins of the government? While taking the decision on the first question, the administration will have to consider very seriously -- and certainly not casually -- as to where it would like to draw a line in the hunt for the corrupt ones in a situation where most people who pay taxes or evade paying the same, despite having the income earnings that require tax payments, have a skeleton in their cupboard, for reasons of either deliberate intention or long-lingering systemic disorder. Unfortunately, the problem of corruption and tax-evasion has permeated to every strata of the society and once the hunt is on unsparingly, anyone who is corrupt, now or ever in the past, will have to be brought to book. And this is a huge task which should be a continuing process and can not be a one-off activity.
The post one eleven developments have shown that the people are actively supporting the changes that the present administration is bringing about in the country. However, despite its best of intentions, it will be difficult to undo the evils of thirty five years in just eighteen months. The important thing to do is to set the basics right for the machinery and institutions to function properly and in accordance with norms. That will discourage people in future to revert to the previous corrupt practices, after the state power is handed back to politicians.
Effective functioning of an independent judiciary, an independent Anti- Corruption Commission, an independent Election Commission, a Tax Ombudsman, an effective local government system, a legislature where the parliamentarians are free to express their views without the fear of losing their seats, a political system where the political parties themselves practise democracy and, above all, a well paid corps of civil servants, who should not have to resort to corruption to live a reasonably good life, will guarantee that the society will not go back to the old corrupt ways in future. When all such institutions are put in order, the rest can best be left to the politicians who will form the next government.
THE Chairman of the National Board of Revenue (NBR) has assured all concerned in his recent 'live telecast programmes' that the government will not prosecute those who will declare their 'undeclared' money by taking advantage of the facility that has been offered by it (government) for such disclosures by July 31, 2007, upon payment of the normal rate of tax, as is applicable on a case by case basis plus five per cent penalty across the board. Unfortunately there were only a few takers, far below the rush that was expected to queue up to declare their illegal wealth. In all probability, the current offer has drawn the least number of responses from those who were tardy with their tax payments.
This in all probability is a reflection of the independence of a new watchdog body that the government has set up, the Anti-Corruption Commission (ACC). Questions still haunt the minds of many whether the ACC will sit idle and not go after those who disclose their undeclared money by paying the normal rate of tax plus penalty charges. The ACC has already made its intention known that it intends to get all laws necessary enacted, for it to get access to the NBR records.
The current administration is going after the corrupt elements, with enthusiasm. This demands appreciation of all those who want to see a healthy society, having transparency of all political and economic activities. Unfortunately, everything has a price and honesty can be too expensive for a poor country like ours. This is being reflected in our market prices. Corruption, as we do now painfully realise, had, in fact, helped to keep the market prices down. Cost of funds was cheap as no body paid any tax to the government, transportation cost was low as trucks were loaded to more than twice their capacity, nobody worried about warehousing, fire service, environment licences, etc. Thus, even after paying the police and other toll collectors, the prices were lower than they should have been if all the legally mandated requirements were met.
The reality is that our economy has otherwise been built on "black money" for more than thirty five years and going totally white overnight will have its costs. Furthermore, the most important question is: Is there enough white money in the economy to replace the black money overnight? And, will there be enough money left to finance the economic activities of the country after black money holders -- who have been financing a large part of the economic activities since long -- pay the fines and taxes to legalise their, what is commonly known as, black money on real or perceived grounds? Is the worst, in terms of market prices, yet to come? With the spectre of July 31, the date after which the NBR is going to hunt down all holders of undeclared assets, the businessmen be busy doing their normal business or will they be busy finding ways of hiding their money which, in effect, will be withdrawn from the economy?
Contingency plans must be made now to finance the economy after the black money is pulled out by businessmen who were used to operating under the previous relaxed business environment. For the businessmen, after paying taxes to regularise their hitherto undisclosed money, the capital available to them for conducting their business will be reduced by around 40%. Real businessmen do not have idle money, their own money plus loans from banks are usually invested in their businesses. The administration must think how would the businessmen, assuming that they pay the 'overdue' taxes, carry on with their current scale of operations after July 31, 2007 with up to forty per cent less working capital.
The present administration will have to take a decision: will they take upon themselves the responsibility to rid the nation completely of corruption and of corrupt people? Or will they install a foolproof system that will ensure a corruption-free society in future i.e., after the "elected" politicians take over the reins of the government? While taking the decision on the first question, the administration will have to consider very seriously -- and certainly not casually -- as to where it would like to draw a line in the hunt for the corrupt ones in a situation where most people who pay taxes or evade paying the same, despite having the income earnings that require tax payments, have a skeleton in their cupboard, for reasons of either deliberate intention or long-lingering systemic disorder. Unfortunately, the problem of corruption and tax-evasion has permeated to every strata of the society and once the hunt is on unsparingly, anyone who is corrupt, now or ever in the past, will have to be brought to book. And this is a huge task which should be a continuing process and can not be a one-off activity.
The post one eleven developments have shown that the people are actively supporting the changes that the present administration is bringing about in the country. However, despite its best of intentions, it will be difficult to undo the evils of thirty five years in just eighteen months. The important thing to do is to set the basics right for the machinery and institutions to function properly and in accordance with norms. That will discourage people in future to revert to the previous corrupt practices, after the state power is handed back to politicians.
Effective functioning of an independent judiciary, an independent Anti- Corruption Commission, an independent Election Commission, a Tax Ombudsman, an effective local government system, a legislature where the parliamentarians are free to express their views without the fear of losing their seats, a political system where the political parties themselves practise democracy and, above all, a well paid corps of civil servants, who should not have to resort to corruption to live a reasonably good life, will guarantee that the society will not go back to the old corrupt ways in future. When all such institutions are put in order, the rest can best be left to the politicians who will form the next government.