SCEPTICISM prevailed in the aftermath of the prime minister’s announcement of a new tax amnesty for all kinds of undeclared wealth, whether held in Pakistan or abroad. Two members of the government’s own Economic Advisory Council, which had met earlier on Thursday to discuss the scheme, told Dawn the entire council believed that the scheme was unlikely to see much of a response. “The main issue is not a tax amnesty,” said a member who did not wish to speak for attribution. “The real issue is protection from criminal prosecution after having made the disclosure.”
Legislating for protection from law enforcement, which will retain the right to ask about the source of the funds declared under the scheme to determine if they are proceeds of crime, is next to impossible because the Supreme Court has already held in the NRO case that criminal activity cannot be absolved through legislation.
“Will anyone believe [the government] that they will be safe under the scheme considering that the government has only two months to go in its term?” asked a member of the council.
Shabbar Zaidi, who is serving the Supreme Court as a member of the Working Group on Foreign Assets under its suo motu action in the foreign assets case, said: “There is no alternative when it comes to foreign assets. The government does not have access to the data or any mechanism to identify, seize and repatriate foreign assets of Pakistani nationals, so how does anyone intend to track these down?”
He argued that the only way to locate these assets and arrange for their return, or at least their declaration against payment of an amount, was through voluntary measures. For the local assets though, the story was different.
“There the government does have access to the information,” he said. But he still supported the scheme “because of the fact that it gives the government the right to pre-empt assets being declared under it” through buying them up at a higher price.
Ali Rahim, a Karachi-based Chartered Accountant with Baker Tilly Mehmoud Idrees Qamar, is also optimistic. “I would indeed advise my clients to benefit from the scheme,” he said, “but only after I have had a chance to study its details once the ordinance is out.”
He said there were many clauses of the Companies Ordinance 2017 that would need to be covered by the scheme for it to be attractive to those it was supposed to be targeting.
The amounts asked for under the scheme in return for an amnesty from tax authorities are quite small. For repatriation of foreign cash, as an example, the scheme asks for a two per cent payment, following which the person making the declaration can opt to buy a five-year bond with a return of 3pc per annum (less than half of what Pakistan’s foreign bonds offer), or encash the entire amount at the prevailing interbank dollar exchange rate.
With a 2pc penalty, if the government wishes to collect $100 million, it will need at least $5 billion to be declared through this scheme. Assuming an average amount of $2m being declared per person, 2,500 people will need to avail the benefit of the scheme. But the objective may only be to bring those dollars into the country, so they can be shown in the foreign exchange reserves even if they do not belong to the government.
Still, the amount required to make a meaningful difference in the country’s deteriorating foreign exchange reserves will need to be substantial. Past schemes have never succeeded to any meaningful extent.
Published in Dawn, April 6th, 2018