It is now not the question of if, but when the much-talked about Amnesty Scheme, 2018 will be announced.

If the urgency apparent from statements of top Ministry of Finance officials is an indicator, the scheme may be unveiled before April 27, when the government plans to announce the Budget 2017-18.

Although the absolute amount of undisclosed assets held by Pakistanis overseas is shrouded in mystery, a reputed firm of chartered accountants estimated that the aggregate sum in cash and assets could be a jaw-dropping $150 billion.

The Prime Minister’s aide on Revenue Senator Haroon Akhtar Khan said the other day that Pakistanis could repatriate up to $5bn under the proposed scheme. Decidedly a modest amount of what is stashed away in foreign bank accounts by Pakistanis, the amount could bail out the country from the current pressing problems of dry up of foreign exchange reserves.

Many people espouse the amnesty scheme used in Indonesia as a model that could be followed. The Indonesian government designed a tax regime to invite inflows for a period of nine months, with initial estimates of money stashed in foreign assets at around $303bn. Indonesians declared an even a higher sum: $341bn. But for all that, the repatriation was just $10bn.

Most people believe that high tax rates prevented offshore asset holders from bringing back the money.

As many as seven amnesty schemes have been announced so far with little success, what makes the government so confident of the success of this one?

A person following the developments says that the Pakistan tax seeker (the FBR) has proposed owners of offshore assets pay between 3-5pc tax on their undeclared assets, while draft proposals of the Foreign Assets Tax Act 2017 recommends a tariff of 7.5pc on assets declared and 15pc on foreign currency and bearer assets.

A big stock broker suggested that following in the footsteps of Indonesia where the government had provided investment asset classes such as government bonds, corporate bonds, Mutual Funds and Real Estate Investment Trust (REIT) for inflows; Pakistani authorities could also design investment instruments which would be of benefit to the economy as well as help develop capital markets.

Muneer Kamal, chairman Pakistan Stock Exchange (PSX) told this writer that the inflows under the amnesty scheme could be a good omen for the stock market since some of it could find its way into company stocks. He affirmed that investment in the equity market had assumed greater attraction after this month’s rupee depreciation against the dollar.

As many as seven amnesty schemes have been announced so far with little success, what makes the government so confident of the success of this one?

“The noose is tightening around those who have stashed undeclared, mostly ill-gotten wealth in foreign shores”, says another former senior banker who asked not to be named.

On Sept 14, 2016, the country signed the Organisation of Economic Cooperation and Development (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters.

“Put simply, this suggests greater mutual cooperation and assistance in taxation matters whereby each member country is expected to commit to transparency and exchange of information under the Standards developed by the OECD and G20 countries”, says Misha Zahid, analyst at Arif Habib Limited.

And Miftah Ismail, Adviser to Prime Minister for Finance, Revenue and Economic Affairs said at a recent meeting with industrialists and businessmen that Pakistan will be able to formally receive information of Pakistanis having deposits in foreign banks from September 18.

The Adviser added in no uncertain terms that the government was planning to shelter tax evaders and financial criminals to document the looted money under an amnesty that was likely to be introduced before the implementation of the international treaty related to exchange of information.

“There is a global campaign against money laundering and tax evasion that has made it increasingly difficult for the tax dodgers to keep their assets in offshore havens”, says Hamad Aslam, director Research, Elixir Securities.

He believes that the direct impact of the amnesty could be minimal on the stock market since inflows are more likely to be channelised into banks, industries and mainly the real estate. “But indirectly, it would have a positive impact on the economy as it would improve the balance of payments situation, fatten reserves and add to remittances”, he asserted.

Pakistanis also have penchant for hiding their undeclared money in Dubai’s Real Estate (in 2017 alone they chipped in $1.36bn as per a press release of the Dubai Land Department). Given that the Multilateral Convention has been signed by the United Arab Emirates as well, for the first time it would be under obligation to exchange such information.

The senior banker referred earlier stressed that in business, timing is everything. And since this was the most opportune moment to introduce the amnesty scheme, the government should take advantage of maximising its revenues through real estate.

He suggested that alongside its planned amnesty scheme, the government should regularise the real estate sector by declaring all real estate free from any encumbrance that pays one-and-half per cent tax on the transactional value of such real estate. He estimated that the State could raise rupees one trillion as well as regularise the most unregulated sector through this.

But there were caveats: The law should receive constitutional approval and real estate holders should be assured protection from harassment by Police, the FBR, NAB and FIA. “For the successful implementation of any amnesty scheme, State (not government) guarantee, immunity and confidentiality are the key requisites” he said.

It appears that the offering of a one-time offshore tax amnesty scheme to all Pakistanis on their hidden foreign assets at low tax rates enjoys support at all quarters: the political leadership, bureaucrats and the judiciary.

For an easy pass through, plans are afoot to amend a host of laws including the National Accountability Ordinance 1999, Foreign Exchange Regulations Act 1947, Income Tax Ordinance 2001, Prohibition of Benami Transactions Act 2017, Federal Investigation Agency Act 1974 and Companies Act 2017.

However, no amendments are likely to be made in serious criminal offences such as the Anti-Money Laundering Act 2010, Anti-Terrorism Act and Narcotics Control Act.

Published in Dawn, The Business and Finance Weekly, March 26th, 2018



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