Tax amnesty in the pipeline to legalize undeclared foreign assets

KARACHI: Pakistan government is trying various measures to improve revenues and widen the tax net to ease the fiscal stress. Under the IMF program, Pakistan’s tax to GDP has improved to 12.4 percent from 9.8 percent in FY2013.

However, to raise non-trivial amount of revenues at the time of rising current account deficit and external debt obligations, government is reportedly considering a general amnesty on undeclared foreign assets, similar to the Indonesian scheme.

The timing of the scheme also suits the initiative as hiding untaxed assets abroad is getting difficult as many countries, including most tax havens, have started adopting principles of transparency and will soon start sharing information under various conventions, Zeeshan Afzal at Insight Securities said.

“Besides, there is always a risk of information leakage like in the case of Panama and Bahamas”.

Though the exact amount of undeclared foreign assets owned by Pakistanis is uncertain, different guesstimates suggest $100-200 billion in Swiss banks alone.

“Here, we cannot rule out assets in other havens while looking at the recent information leaks and the fact that Pakistani’s are one of the largest property buyers in Dubai, with total buying of $7.5 billion during January 2013 to June 2016,” Afzal added.

In the recent tax amnesty by Indonesia, $321 billion have been declared, higher than the government estimation of total $303 billion undeclared assets.

“Without getting into the debate of moral hazards, we believe the proposed amnesty could result in quick grab of revenues and forex inflows at the time of rising current account deficit and looming debt repayments,” Zeeshan said.

Taking cues from the Indonesia, the similar scheme could bring in $5-6 billion as one-time tax revenue and another $3.0 billion from repatriation, totaling to 3.0 percent of country GDP and 14 percent of public external debt.

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