The mother of all amnesty schemes announced by Prime Minister Shahid Khaqan Abbasi in the government’s terminal days proves once again that this country’s tax evaders are favoured more than law abiding, taxpaying and return-filing ducks.

To allow the rich, who got away with all past liabilities, to declare their illegal assets at home and abroad, at a negligible tax rate means that their compatriots will keep paying the cost of honesty for years.

The amnesty also offers an incentive for many others to stay out of the formal economy for a few more years, save some more bucks, and whiten the black money and assets at a later time of their choice.

To allow the rich to declare their illegal assets, at a negligible tax rate means that their compatriots will keep paying the cost of honesty

This was perhaps the fourth amnesty announced by the present government to select groups, starting with a 2014 investment scheme announced by then prime minister Nawaz Sharif, followed by two more schemes offered to traders and real estate developers with not very encouraging results.

This was because those choosing not to declare their liquid, movable and immovable assets remained unchallenged and the tax machinery either failed or did not attempt to trace them.

When asked why the government was offering only incentives to those operating in the black economy instead of punitive actions to increase the cost of violation of the law and tax evasion, the prime minister said it would be up to the parliament to determine any punishment.

Interestingly, the government plans to provide legal cover to the amnesty related presidential ordinance through the upcoming finance bill 2018-19. The prime minister said the scheme would remain available only up to June 30, 2018 and thereafter, strict penalties would be imposed on defaulters.

The latest move would be available to all Pakistanis anywhere in the world and at home, and its success would also depend on the ability of the government machinery to go after those enjoying the benefits of more than half the country’s informal economy.

As initial signs suggest, the revenue bureaucracy is staying away from the initiative mainly because of the associated package of relaxation in income tax rates to existing taxpayers and return filers for next year.

The government expects up to $5 billion repatriation of foreign assets abroad or at home to the official channels and the diversion of a significant part of foreign currency accounts with domestic banks that have increased to more than $6bn from around $4.5bn a few months ago towards five-year dollar bond.

Interestingly, the foreign currency accounts increased while the central bank reserves kept on declining as the current account deficit widened. The biggest challenge to the policy appeared to have already come immediately from the two main opposition parties — the Pakistan People’s Party (PPP) and the Pakistan Tehreek-e-Insaf (PTI).

While the PPP condemned the amnesty scheme “given to the rich” and announced to oppose it in the parliament, the PTI chief Imran Khan went to the extent of pledging not only to reverse the scheme but also to investigate those benefiting from it, in case he was voted to power.

Interestingly, he warned tax evaders not to take advantage of the scheme and come into the tax net. This has already created a sense of insecurity and deterrence to potential beneficiaries.

In his public pronouncement, the prime minister highlighted the politically exposed people and those in the service of Pakistan and their families as beneficiaries of the scheme, but the language of the proposed law gives a different connotation.

It says that the foreign assets declaration and repatriation ordinance is not valid to money laundering, drug smuggling, terror financing and current public office holders/people in the service of Pakistan including their spouses and dependent children.

Based purely on the language, even many leading political personalities and their non-dependent children could benefit from the schemes. Notwithstanding political opposition, the entire package is expected to have a feel-good impact on the stock market.

At the minimum, there would be an expectation that foreign inflows would bring some liquidity to the equity markets and add to the consumption behaviours.

The good thing is it results in deterrence: under-declaration would provide the government an option to purchase the asset or property at double the declared value in the first year, followed by 75 per cent higher value in year two and thereafter 50pc higher rate.

The government expects the scheme to get a boost from recent developments at the international level.

The government expects the provisions of the Convention to expose Pakistanis’ hidden offshore accounts and assets to tax authorities and help contain cross-border tax evasion.

Published in Dawn, The Business and Finance Weekly, April 9th, 2018