KARACHI: The government is considering widening the scope of a proposed tax amnesty scheme to bring back the enormous amount of locally owned wealth believed to be stashed abroad.

At the same time, however, the scheme — which would follow many other failed attempts by successive governments to cajole, threaten or force Pakistanis to bring back wealth hidden in undeclared offshore assets — is seen by many as a licence to plunder and later launder the ill-gotten money. But many investment strategists believe that the government may have to swallow the bittersweet pill.

After the ongoing hustle and bustle over offshore companies, a full disclosure of wealth held abroad by resident or non-resident Pakistanis has become all the more important.

But if previous amnesty schemes failed, why would another one work?

“The government doesn’t have a lot of options. It can either do nothing or attempt to bring back the money for corrective measures (to stop further accumulation abroad),” Zubair Ghulam Hussain, CEO of Insight Securities (Pvt) Ltd, said.

However, a demand to bring back all the money may not be practical as most assets are parked in businesses or real estate. Instead, declaring or bringing back assets at reduced rates seemed to be a workable option, the investment analyst said.

There are reports that the government may release the incoming amount by levying five per cent tax in the first month, 7.5pc in the second and 10pc in the third and fourth months after announcing the scheme. In case of foreign assets brought back into the country, the net tax penalty may be halved.

Mr Hussain said the Indonesian model could be studied as a good precedent. The country has concluded its nine-month-long tax amnesty with declarations totalling $365 billion (equivalent to 39pc of nominal gross domestic product), while the penalties and repatriation amounts stood at $10.1bn and $11bn, respectively.

The Philippines has also announced that it would follow Indonesia’s lead in implementing a tax amnesty as it seeks to boost revenue to pay for its ambitious spending.

Pakistan is more or less under the same situation where the government needs funds to support balance of payments and meet its development plans without stretching fiscal account.

On the other side, the asset declaration is not even an option now for the country with known undeclared assets abroad, for it is now a signatory to information sharing agreements such as Organisation for Economic Cooperation and Development’s tax treaty, United Arab Emirates regulations and US Foreign Account Tax Compliance Act, he said.

The tougher reporting standards set out by the Pakistani regulators could also make it difficult to either keep cash abroad or invest in overseas assets. Pakistanis are known to be one of the biggest property buyers in Dubai, with transactions amounting to $7.5bn during January 2013 to June 2016.

Published in Dawn, May 2nd, 2017