Shabir Ahmed
It has arrived: the latest ‘economic reforms package’. It has taken its time in transit -since the Panama Papers to be precise - but should we scream with joy, or kick and scream all the way to the postman?
The package seeks to provide a modicum of relief to those fearing ‘reprisals’ once the details of their foreign accounts are made known to FBR under the Common Reporting Standards (CSR) of the OECD convention that Pakistan has signed and ratified. But to those with undeclared assets this relief is not free of angst; there is no certainty to an anxiety-free afterlife.
It has also caused some anguish, as ‘amnesty’ typically does, to those who deem themselves to be ‘honest tax payers’. Personally, we don’t know of any (ourselves included) who happily and voluntarily – and honestly – pay their taxes; but we can’t assail the argument that amnesties, by definition, are unfair. The ‘morality’ argument is hard to dispute.
Not untypically, the ribbon around the package is lettered with palliatives like ‘one time’ and ‘last chance’, but we have seen this before and are not fooled. We are sure even our good friend, the dynamic Miftah, will not fall for that one.
So if one set of people feels diminished, and the other unsure, whose brilliant idea is it and who really is this amnesty for?
It would have been easier to answer this question if the ‘objectives’ of the scheme were clearly enunciated. Is the principal objective to shore up the fast depleting FX reserves? Is it meant to bolster tax revenues? Or is the idea to wipe the slate clean and give people a fresh start to become compliant (hence the more liberal tax treatment and inclusion of the ‘whitener scheme’ for domestic assets) and enlarge the tax base?
Is it tax reform or our version of ‘truth and reconciliation’: confess, pay, and do it again?
The ‘reform’ package is unlikely to do much for FX reserves until we come to grips with the underlying reason for transferring money abroad. It is not out of fear of the tax man here; nor because it earns more there. The opportunities for money to grow are incomparably greater here. It is the larger security concerns and policy uncertainties that make it wise for one to park a part of his wealth abroad. It is like an insurance policy. No amnesty is going to bring back shiploads of dollars until these concerns are addressed.
The threat of being hauled up once the OECD convention (Common Reporting Standards) kicks in has also been largely mitigated, except by a few babes in the woods, by the delay in fixing the ‘effectiveness date’. This delay, deliberate or otherwise, has given the big players enough time to move their assets around and cover their footprints.
Even now, there is no certainty of September 2018 being the ‘effective date’, despite the Prime Minister saying so. A lot more remains to be done – a stringent confidentiality law that the OECD is insisting upon, and setting up the necessary portals, for instance.
For many repatriation, and paying a penalty of 2% to wash your sins, will not be a feasible option. It would mean cancelling the ‘insurance policy’. To keep your cash abroad you have to part with a full 5% of it. That is hefty and there will be few takers. Putting into bonds and earn 3% a year is a more attractive proposition but the exchange rate risk dims its allure.
On top, the ointment is full of flies: political opposition, FATF reaction, courts becoming the spoilers (discrimination and confidentiality aspects), and possible nosing around by NAB (there is no immunity from the stringent provisions of anti-money laundering law, or ‘commission of a criminal offence’). These threats are likely to make people think twice before deciding to come clean.
While with foreign assets you have the risk of being found out once the ‘automatic exchange’ under the OECD convention gets triggered, there is no such risk subsumed into the Ordinance dealing with domestic assets. What has changed that will now make people pay tax on their undeclared domestic assets?
The income tax concessions provided to individuals is a step in the right direction, but unless tax administration changes beyond recognition this by itself will not lead to a widening of the tax net. The cost of these concessions is small (estimated at Rs90 billion, a fraction of FBR’s total receipts) but so are the chances of greater tax compliance.
Frankly, the only part of the package that could pass for genuine reform pertained to real estate transactions - the ‘mother of all black money’. Inexplicably, this part of the package has been left out. Until we can fix this source of black money, often forced on even those few who do wish to pay their dues, we will keep lurching from one amnesty to another.
In our estimation, the package is not likely to have a significant impact on reserves, revenues, or the tax base. Why then did the government do it? And so clumsily too - towards the end of its tenure, and through an Ordinance when it could have just as easily incorporated it in the Finance bill scheduled for April 27. What was the great hurry? It looks almost surreptitious. It was as if a ‘signal’ from some hidden corner was being waited for.
The package was a long time in coming. We have been hearing of the impending arrival of these ‘reforms’ for months; the real work on which was being done not by the government but by big business and its envoys in the government. It was being designed by big business for big business.
But suddenly big business has become introspective.
When you rush things through, and without plausible explanations, you invite speculations. Why this 80 days window, and why non-admissibility of declarations as evidence? Who are the real beneficiaries? Those who are not dependent today but were before 2000? Those who are not holders of public office today but could be post-June 30? Those who are already in trouble abroad or will be in trouble soon?
Government is all about accountability. Which heads will roll if the State does not turn out to be the major beneficiary of this amnesty?
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