Govt mulls tax amnesty scheme to bring back billions hidden offshore

islamabad — Pakistan is mulling a tax amnesty to bring back wealth hidden in foreign assets, a move that may boost stocks, bonds and property.

The government is considering submissions by Pakistan’s business community seeking relief on undeclared offshore holdings, said Syed Masoud Ali Naqvi, a member of the government’s Tax Reformers Implementation and Monitoring Committee. No plan has yet been approved or finalised, he said.

The proposal, if implemented, could help boost revenue and offset the risk of fiscal slippage before next year’s national elections, Hasnain Malik, an analyst with Exotix Partners LLP, a frontier-market investment boutique, wrote in a research note last week. It may also offer respite for Pakistani equities, which have trailed the MSCI Frontier Emerging Markets Index this year after being Asia’s best performers in 2016.

“Liquidity in the stock market and real estate should increase significantly, even based on conservative forecasts,” Shiraz Zaidi, research head at Karachi-based brokerage Arif Habib Ltd., said. “The fact that other countries have implemented a tax amnesty makes this legislation more likely.”

Pakistan could collect about $3.5 billion in tax revenue, equivalent to 1 per cent of nominal gross domestic product, if 30 per cent of the undeclared foreign assets are disclosed and an average 8.5 per cent tax is levied, Exotix said, citing Argentina’s recent success.

Pakistanis hold $150 billion in undeclared offshore assets, according to an estimate by Syed Mohammed Shabbar Zaidi, a partner at A.F. Ferguson & Co., an affiliate of PricewaterhouseCoopers LLP. The stash comprises $80 billion in property and bank deposits, $20 billion in local stocks held in foreign accounts — about a fifth of the bourse’s market value — and $50 billion in assets such as manufacturing concerns, according Zaidi.

About 1 per cent of Pakistan’s 200 million people pay taxes, and previous amnesty programmes have failed to significantly widen the base. The country has one of the lowest tax-to-GDP ratios in South Asia despite reforms introduced as part of International Monetary Fund’s $6.6 billion loan program that ended in September, such as reducing breaks and cutting evasion.

Less than 0.3 per cent of the nation’s 3 million goods traders participated in the tax amnesty programme launched in April last year. — Bloomberg

liquidity in the stock market and real estate should increase significantly, even based on conservative forecasts. Shiraz Zaidi, research analyst

The proposal, if implemented, could help boost revenue and offset the risk of fiscal slippage Hasnain Malik, An analyst