Govt’s tax amnesty scheme is to improve revenue and widen tax net: report

 

According to a recent report the incumbent 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 per cent from 7.8 per cent in 2012-13. However, to raise non-trivial amount of revenues at the time of rising Current Account Deficit and external debt obligations, the government is reportedly considering a general amnesty on undeclared foreign assets, similar to the Indonesian scheme, the analysis of Insight Securities report said.

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. Plus, there is always a risk of information leakage alike in the cases 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, the analyst cannot rule out assets in other heavens while looking at the recent information leaks and the fact that Pakistanis are one of the largest property buyers in Dubai, with total buying of $6.5 billion during January 2013 to June 2016.

In the recent tax amnesty by Indonesia, $321 billion (34 per cent of GDP) have been declared, higher than the government estimation of total $303 billion undeclared assets.

Similarly, $10.5 billion have been repatriated while the estimated tax revenue collection is $13.5 billion, cumulating to 2.6 per cent of GDP and 15 per cent of country public external debt.

Taking cues from the Indonesia, the similar scheme could bring in $5-6 billion as one-time tax revenue and another $3 billion from repatriation, totalling to 3 per cent of country GDP and 14 per cent of public external debt.

What could be in Pakistan’s tax amnesty?

Although the government has not officially notified anything, there are news flows that government may offer a general tax amnesty scheme in next finance bill. This is to bring in money stashed by its citizens after increasing requirements of disclosures in offshore heavens have made it difficult to retain untaxed and hidden assets abroad.

According to local newspaper, the government may offer to disclose hidden wealth by paying 5 percent in first month, 6.5 percent in the second and 10 percent for third and fourth month. However, if the foreign asset is brought back to Pakistan, net tax penalty would decrease by 50 percent.

Tax amnesty is a limited-time opportunity for a specified group to pay a tax/levy, in exchange for forgiveness of a tax liability relating to previous tax periods. The voluntary compliance strategy, sometimes, comes with harsher penalties on the eligible group if it does not take it.

To raise non-trivial amount of tax revenues and to cope with the financial crisis, many countries have announced tax amnesty of foreign assets in recent times. The list includes Spain, Greece, Portugal, Italy, United States, Australia, Singapore and Indonesia, the analyst report said.

Availing the amnesty makes more sense in today’s scenario where the tax evaders fear possible information leakage and tightening global financial regulations. The same could be experienced from the results of recent tax amnesty by Indonesia. However, over the negative side, a tax amnesty may invite public criticism, discontent among masses and more evasion as taxpayers start anticipating future amnesties.

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