A new Income Tax Audit Scheme was introduced in Pakistan in the budget 1993-94. In fact. it was a modified form of immunity Scheme of the early 1980’s. This paper attempts to analyse the new scheme on the basis of the tax evasion theory. Our analysis shows that this scheme induces those taxpayers, who have been selected for audit at least once in the preceding three years, to participate in it and to raise their declaration. However, the majority of taxpayers (who were not audited previously) exploit the scheme and drop their declaration level. Thus, it does not meet the objectives of the policy makers. Moreover, our analysis reveals that the scheme is pro-corruption.
