There are three reasons for any Tax Amnesty scheme in the world. Financial, Political and Technical.
Financial is very obvious to all. Whenever a country is going through a crisis, it becomes necessary to collect taxes. In a severe time of crisis, government considers any amount of collection a blessing. Tax Amnesties during the times of financial crisis are exactly that, getting whatever you can from the tax evaders.
Political reasons are just that, political. It is a popular decision that most tax payers look at as establishing governments’ writ. But it hardly does so. Nonetheless it is very popular around the world because amongst citizens because they feel that all should pay taxes, this feeling is specially shared by the ones who are already within the tax net. So they feel that others who are not paying taxes now will also pay taxes.
Tax Amnesty Schemes go as far back as 1964. Indonesia was the country that introduced it within their tax jurisdiction in that year. Then they did it again in 1984, 2008 and 2016. You may call Indonesia an expert country in tax amnesty offerings. It has had a fairly successful rate of bringing people into the tax net and collecting revenues for themselves. The 2016 scheme ended on March 31st 2017 and had $9.6 billion in repatriation of funds.
Italy, Malaysia, Canada, Australia, Belgium, Germany, Greece, Philippines, Portugal, Russia, South Africa, Spain and even United States Of America has offered tax amnesty schemes in the past. The only exception being America, where the individual states offered such schemes instead of the federal government, or The Internal Revenue Service. Results varied from state to state. California offered a tax amnesty scheme and the city of billionaires, Los Angeles, only collected $18.6 million in 2009 whereas the state of Louisiana collected $450 million within the same year, three times its target.
Notice one thing that all of the above countries that I have named are fairly efficient in collecting their taxes to begin with. They stand on top of the echelon when it comes to tax collection. They have a system in place. They have a history of collecting highest amount of taxes during the non-amnesty periods on a regular basis. Still yet they mostly failed during their tax amnesty period to collect the desired amount.
Not a single country in the world has ever been able to reach its target.
Then why do countries still offer such schemers when historically we have such dismal performance numbers ? The answer lies in two parts. One: within the countries that have an excellently documented economy, it is just giving a chance to its citizens who have missed their tax payments or for any odd reason had not declared their entire tax liability to the state. In such countries, if they do not avail the scheme being offered, the state has all their records because of the economy being documented and the state can and does come down hard upon the ones who missed the scheme.
Two: in countries like ours, Pakistan, where majority of the citizens are not within the tax net, or the economy is mostly based on cash transactions, when we offer tax amnesty schemes, it is usually from a point of weakness. Because we had already failed to collect taxes from the evaders in the first place. We already did not have them documented to begin with. We hardly exercised the writ of the government in the past. We rarely tried to document the undocumented part of the economy and the tax payers. So when countries like Pakistan offer a tax scheme, barely anyone takes it seriously. Why ? Because they go by the historical action of the stare which tells them that it is almost none. They know that even if they done avail the scheme, there is not much the government will do as punishment.
The long term effects of tax amnesty schemes on the economy are absolutely negative. It gives an advantage to the law breakers over the law abiders. It is that simple. It is a sign of desperation by the state. It is an admission of the fact that the state is surrendering to the tax evaders.
The only way to have tax amnesty schemes be taken seriously is to have a crackdown on the ones who missed it. A crackdown unprecedented in history. So the writ of the government is established and if by any chance a tax amnesty scheme is ever offered again the future, it is taken seriously and it is taken as a sign of a limited time offer that one must avail because otherwise one would face severe repercussions.
Until that happens, all amnesties schemes will fail. May it be like the ones in the past governments or the ones like in this government.