Appeasing offshore account holders
The tax amnesty scheme announced by the previous PML-N government has not encouraged the illegal offshore account holders to pay a ridiculously low 2 percent tax and get their black money whitened both within the country and abroad. Extremely worried about the precarious economic situation, the caretaker government, with its limited mandate to fix the faltering economy, has urged the bankers to play their role in making the tax amnesty scheme successful and the first dollar based saving certificate for overseas Pakistanis to shore up the critically low foreign currency reserves.
For ensuring the success of the scheme, the government is ready to make amendment to the relevant laws to remove the emerging irritants. In this regard, finance minister Dr. Shamshad Akhtar held meeting with the State Bank of Pakistan last week and Pakistan Stock Exchange (PSX) Board of directors and senior members on Monday. The minister agreed with the participants of the meeting that people declaring their assets should be allowed to pay tax from third party account. The existing rules allow the payment of tax from only the account of people declaring their assets. To incorporate the requisite amendment and remove other irritants, the minister is holding a meeting of all regulators and stakeholders to review them and take appropriate decision for their removal. The tax amnesty scheme will expire on June 30 and 12 days are left.
The PML-N government announced the tax amnesty scheme on the advocacy of Pakistan Banking Council (PCB). Former Prime Minister Shahid Khaqan Abbasi was made to believe that time is ripe to attract offshore investment by Pakistanis due to tightening control against tax evaders by the Organization of Economic Cooperation and Development (OECD). He was then convinced that OECD will make it difficult to retain the untaxed money abroad. Such amnesty will provide a golden opportunity to billionaire politicians and business magnates to repatriate their hidden fortune—lest they are found violating global fiscal laws—was the opinion of Dr. Ishrat Hussain, former Governor State Bank of Pakistan. Four and a half months have passed but the miracle predicted by the former Governor of State Bank of Pakistan has not occurred.
Like other developing countries, by and large, the past experiences of tax amnesties were not an enviable one in Pakistan. It has seen mixed outcomes from such amnesties. In 1958, under Field Marshall Ayub Khan military government, Pakistan’s first tax amnesty scheme brought 71,289 people in the tax net. The new taxpayers declared Rs. 1.3 billion in assets. In 1969, General Yahya Khan amnesty added new 19,600 tax payers with declared assets of Rs. 920 million. The success rate of tax amnesty schemes declined further. In 1976. Zulfiqar Ali Bhutto could collect Rs. 270 million through tax amnesty scheme. In 1986, general Ziaul Haq attempted tax amnesty but met with little success or no success. In 1997, Prime Minister Nawaz Sharif could add only Rs. 141 million through tax amnesty.
In 2000, general Musharraf government launched a campaign for documentation of the economy which was a right step and could have succeeded appreciably, but it fell prey to the rigidity of tax machinery. Nevertheless, it resulted in the tax collection of about 3 billion dollars. In 2016, Prime Minister Nawaz Sharif announced three tax amnesty schemes under which the government expected to bring a million tax payers into the tax net. But in actual terms only 128 people participated.
The legitimacy of fourth tax amnesty scheme, which is offshore assets specific, was critically evaluated in print and on electronic media by tax experts and renowned audit firms. The majority opinion was that it is well beyond the mandate of government to announce a tax amnesty scheme at the fag-end of its tenure without the approval of the Council of Common Interest, which is a constitutional necessity. Does the caretaker government have the mandate to amend laws to allow offshore account holders to pay a tax at very low rate of 2 percent on their ill- gotten wealth stashed away into offshore accounts and immovable properties? What will be the reaction of the international watchdog against money laundering, the Financial Action Task Force (FATF) to the amendments to tax laws for appeasing the offshore account holders? FATF is holding its meeting this month to put Pakistan back on the grey-list of countries which have weak anti-money laundering and counterterrorism laws.