KARACHI: Pakistan has had an unprecedented response to a new tax amnesty, with more than 55,000 people declaring local and foreign assets worth trillions of rupees, according to the country’s Ministry of Finance.
The Pakistan government had earlier announced two tax amnesties for undisclosed income, and foreign and domestic assets.
The schemes aim to boost country’s declining foreign exchange reserves and increase the number of income tax payers, now a mere 1.2 million.
“During a time when the law and order situation in the country was at its worst, people started investing in other countries. As the situation has normalized, they are now coming back,” former president of the Federation of Pakistan and Chambers of Commerce and Industry (FPCCI), Zubair Tufail, told Arab News.
“So far, 55,225 declarations have been filed in which the declared value of foreign assets is around 577 billion rupees ($4.8 billion) and 1,192 billion rupees for domestic assets. Declarants have paid about 97 billion rupees of which almost 36 billion ruppes have been collected on foreign assets and 61 billion rupees on domestic assets,” the finance ministry said on Wednesday. It added that “$40 million has been repatriated.”
Pakistan’s Federal Board of Revenue (FBR) hopes to declare up to $4 billion in returns. “With the trend of asset declarations and feedback from tax consultants and chartered accountants, the final figure can be close to $3-4 billion,” FBR spokesperson Dr. Muhammad Iqbal said.
The FPCCI expects that by the closing date of the schemes, tax collection will be up to 250 billion rupees.
Tufail said: “There is no need to extend the date. It is enough and people should take this opportunity.”
The closing date for the amnesty was extended from June 30 to July 31, 2018, due to procedural challenges faced by declarants in the payment of tax on foreign assets and repatriation of liquid assets.
The amnesty for foreign assets applies to both liquid and immovable assets such as bank accounts, shares and mortgaged properties at rates ranging between 2 to 5 percent. A special tax rate of 2 percent is applicable to liquid assets on repatriation.
The government has provided legal cover and promised confidentiality of declarants’ information under both amnesties. Information gained during the scheme cannot be used as evidence under any other law.
The State Bank of Pakistan (SBP) has allowed declarants to deposit tax in US dollars via wire transfer. The government’s US dollar denominated amnesty rules also authorizes the SBP to issue bonds with a maturity period of five years and annual profit of 3 percent to be paid semi-annually.
Analysts say that two major factors explain the overwhelming response to the schemes: The low rate of 2 to 5 percent; and Pakistan being a signatory to the OECD Multilateral Convention, which provides access to information about offshore financial accounts of Pakistani residents from September 2018.
“The sword of the OECD is hanging over the heads of those hiding assets abroad,” senior economist Muzzamil Aslam told Arab News. “On the other hand, the change in regulations is paving the way for the declaration of local assets at attractive rates, which is also enticing.”
Pakistan hopes revenues collected through the tax amnesties will help to reduce poverty and boost development.