View from Pakistan

Pak govt has to be more transparent on tax amnesty

Pretend you don’t know anything. Nothing at all about this kind of stuff. Which shouldn’t be too hard: tax amnesties and the like are for the ultra- rich.

For the 99 per cent, it’s all gobbledygook and baffling.

There are only two questions: why would the government offer such a scheme now; and who will be willing to bite?

Both questions sit at the intersection of politics and the economy, so the answers could be dramatically simple — to help their corrupt buddies! — or fairly complex — changes in the systems for managing money and assets parked around the globe.

But the answers to the questions must follow logic and incentives, which helpfully can be traced by anyone.

There’s an automatic hit to the government’s reputation in concocting amnesty schemes, so there must be something the N- League hopes to gain from the scheme that more than compensates for the reputational and political hit.

As for those who bite, anyone who takes up the government’s amnesty offer, there must be a cost they are looking to avoid that is greater than the hit they could take when declaring such assets here.

Declaring assets means the public will know who the beneficiaries are and the state will know what they’re worth. That’s risky stuff in a place like Pakistan, so there’s got to be something worse than declaration that beneficiaries will be looking to avoid.

So what could the incentives and costs be?

Start with the government. The best- case scenario is that the NLeague’s finance team actually believes the amnesty could net a great deal of money. That is unlikely, but there could be a couple of reasons informing that thinking.

For money parked abroad, the global financial regime has grown and will continue to grow tighter and more restrictive.

That means where it was once relatively easy to buy an expensive apartment or villa in Dubai or park money in an account somewhere in West Asia or Europe, now it’s not that easy at all.

So rich Pakistanis with undeclared money and assets inside Pakistan could calculate that it’s better to whiten their wealth and take advantage of investment opportunities in the formal, documented sector.

That’s the best- case scenario: fear of losing their money abroad or concern about fewer investment avenues for undeclared money inside Pakistan may cause a bunch of people to avail the amnesty scheme.

So why not squeeze the hell out of the amnesty- seekers?

Surely, between losing a hundred per cent of your money in a tightening net abroad and paying a paltry two or five per cent to bring it back to Pakistan, there can be a higher percentage the government can extract.

But it’s not. Which is the simple answer: the amnesty is to help out some special friends or family in trouble. Straightforward and unholy corruption.

There’s the flipside, though. You’re a potential beneficiary of the amnesty. The incentive to participate exists, but that’s not enough: you need certainty that the scheme will stick, that it won’t be rescinded.

That once you’ve declared your wealth, whether by bringing it home from abroad or switching from the local informal and black sectors to the formal sector, you’re not going to get trapped.

That someone won’t run to the Supreme Court and get the amnesty scheme invalidated retroactively or that the next government won’t set investigators after you if you whiten your assets now.

Amnesty beneficiaries need to have some confidence that they aren’t walking into a trap, either deliberate or inadvertent.

If the government was serious about the amnesty, there was a way to promote confidence in the scheme: present a draft bill with all the details, have the federal Cabinet approve it and ask the SC its opinion whether the bill is legal and constitutional.

The N- League has done none of that.

In the current political climate, who’s to bet against a court striking down the amnesty as manifest corruption? As a potential amnesty- seeker, would you be willing to take that risk?

That, yes, the government has set up a sweetheart deal for you, but it can be snatched away and you could be exposed to God- knowswhat civil and criminal liability if the court decides to wade in in populist mode.

The ordinary amnesty- seeker will surely be skittish and the super- connected amnesty- seeker has serious reason to worry. So what the hell is going on? Either the system is more rigged than outsiders can comprehend or smart people attempt stupid things when in government.

Neither is very encouraging. Especially for the 99 per cent who know nothing of such gobbledygook and baffling stuff.