Syed Bakhtiyar Kazmi
“Finance is a gun. Politics is knowing when to pull the trigger.” – Mario Puzo quotes from Godfather III. And at least in my book, not knowing when to pull the trigger has been the biggest problem with our politics and our politicians; if we have really messed up one thing, it is the economy. Any resemblance to any other popular quote is unintentional and absolutely non-political.
Yes, it is all about the economy. And yes, in the case of a developing country, it is only about the external economy, the one that leads to the current account deficit. And yes, looking at the latest data uploaded by the Central Bank on its website- a record 11 month current account deficit of US$ 15.96-the economic situation appears to be more and more fatalistic; to put it mildly.
And if things weren’t bad enough, our very dear ally from yester years conspired with our biggest enemies to have us “grey listed” by FATF; while our current allies and friends watched from the sidelines. In isolation perhaps this might not have been that big a deal, however, coupled with other factors feeding into the perfect storm surrounding Pakistan, grey listing can have serious repercussions this time around.
Having dabbled with the domestic economy in this column from time to time, I have been asked numerous times about solutions. Notwithstanding the fantastic manifestos coming out during this election season, which set out noble, yet overly ambitious targets, sans a road map, I have maintained that the only way to avoid painful austerity measures is to discover tons of gold or billions of barrels of oil. On the flip side, I have always been aware that predicting the economy is, nonetheless, a mug’s game of the highest order.
On 1 June 2011, the Organisation for Economic Cooperation and Development (OECD), opened for signatures the amended Convention on Mutual Assistance in Tax Matters (the Convention). Pakistan, after mulling over the pros and cons of signing, eventually decided to become a signatory to the Convention on 14 September 2016. Currently 103 jurisdictions are participating in the Convention, which include China, Turkey, Saudi Arabia, the UAE and obviously the US and the UK; favourite destination for Pakistanis to invest in and park money.
And what exactly does the Convention entail?
“Pakistan is signatory to OECD Convention on Mutual Administrative Assistance in Tax Matters which has been signed by most of the countries around the globe. Pakistan is poised to receive information in the latter half of 2018 in respect of offshore financial accounts. The said information of bank accounts maintained by Pakistanis abroad shall be provided by those jurisdictions automatically”, extract from answer 51 included in the FAQs relating to the twin amnesty schemes, which were recently extended by a Presidential Order.
And that is not all; apparently, the Automatic Exchange of Information (AEOI) under the Convention has been broadened to include income types such as interest, dividends and proceeds from sale of financial assets; while ambit of reporting entities includes deposit taking banks, custodial institutions, certain investment entities and certain insurance companies. Except, information about non-resident bank accounts is restricted to instances where deposits are in excess of one million dollars since opening of the account. Albeit, for the record, the Convention also envisages assistance in the forms of exchanging information on request as well as spontaneous exchange of information.
But this is not where the story ends. Realizing that all this information will be available to them in September 2018, the tax authorities brought in various amendments in the tax legislations through the recent Finance Act, all of which attempt to tax income earned abroad by Pakistanis directly or indirectly, under any structure, do away with the limitation clauses, and restrict immunity on remittances.
A valid question to ask at this point might be that with all these developments, why offer a foreign asset amnesty in the first place! And what is my perspective on this issue? Perhaps an opportunity to come clean might have been a fair strategy, and the amnesty does attempt to incentivise Pakistanis having accounts with deposits of less than one million dollars; but on the flip side, then there should be no discrimination.
Nonetheless, we are not concerned with what the FBR collects under the foreign asset amnesty scheme, how much it collects, whether or not they get to the US$ 2 billion figure projected by Moody’s, and whether or not FBR succeeds in taxing foreign incomes and assets in future. Of primary interest is the total amount of foreign assets held by Pakistani identified under the amnesty scheme and thereafter through the first wave of AEOI this September.
I am sure the G20 pursued the Convention for their selfish interests and Pakistan probably did not even exist in the back of their minds; but apparently miracles can happen in the real world. If you ever wanted to bring back the much talked about billions of dollars held by Pakistanis abroad, estimated to be sufficient to easily pay off the accumulated national external debt, and then some, the first step was always to identify and quantify these foreign assets.
The Convention provides that information on a platter!
Cheers!!!
(The writer is a chartered accountant based in Islamabad. Email: [email protected])
