IRSHAD SALIM (JUL 5, 2018): Nearly $6 billion worth of foreign assets have so far been declared under the offshore tax amnesty scheme, with Pakistanis repatriating a sum of about $30 million only.
The caretaker government has given one-month extension in the one-time tax writeoff scheme till July 31, with both sides racing against time.
The government is hoping there will be more money pouring in, while others are expecting more extensions — for understandable reasons.
Initial figures for the period of April 10 to June 30 show that Pakistanis have paid $290 million in taxes on nearly $6 billion of declared assets.
The liquid assets that were transferred to Pakistan were around $30 million only.
The results of the offshore tax amnesty scheme show that majority of the assets were declared under the domestic amnesty scheme.
The caretaker government is hoping the situation will improve with the tax machinery and central bank backing the scheme and removing all the bottlenecks. But several tax experts told BE2C2/PKonweb the great initiative could fail — both on strategic and tactical levels, due to lack of capability of the facilitating and executing authorities.
According to reports, FBR did not move until the caretaker government pushed them –because the scheme was launched from the PM Secretariat without their input and without them being on board.
Blame game and politics aside, the merit of the initiative itself, its launch timing-wise as well as the total time given for such an expected “downpour of fortune”, and then the absence of “Plan B” appear to be key determinants which could lead to failure. Unfortunately the contours of such a potential mishap are emerging following Murphy’s Law.
Pakistanis hold about $150 billion worth of assets abroad, according to an assessment by chartered accountancy firm, A F Ferguson in April last year.
Those included $40 billion investments in real estate, $40 billion in bank balance and foreign securities; $20 billion investments in Pakistani companies’ shares and $50 billion worth assets were of miscellaneous nature.
The firm had indicated that even if 2% to 3% of Pakistanis assets abroad — that came to $3 billion to $4.5 billion — was actually repatriated to the country, that would be a success.
However, mere $30 million repatriation was not a success by any standards, Tax and legal experts say. Those experts who have been engaged by their clients blame the FBR and the SBP for the poor show.
Poor response to-date is being attributed to authorities failing to convince people that it was ‘the last opportunity’ for those who have kept their assets hidden abroad. The question is why is it being branded as the last opportunity. Instead, why not rebundle it on a graduated, time-scaled, time-borne concept pegging incremental benefits as lowest hanging fruits and topping with penalties on top of the pyramid. It can still be re-packaged, developed and launched as Plan B.
It seems either no serious homework was done or workshop was conducted to brainstorm such a concept, given that there is precedence of past unsatisfactory results with similar approach. What only kept emerging and re-emerging, according to sources, is how to make things happen push come to shove given time is of the essence.
The FBR started the campaign to promote the tax amnesty scheme very late – hardly ten days before its original expiry date. “The campaign was selective and unconvincing,” said tax experts. But we don’t blame them as the initiative is akin to an aircraft carrier and not a jet-fighter –speed and quick-reactive output wise.
Another reason was that the country’s second largest bank that has branches overseas did not back the scheme till June 28. Even if they did, the problem would still remain at source.
Such a mega initiative should have been launched way back we feel on institutional level, not on political level as was done in March in a hurry.
Enough time should have been built into the plan for asset holders to consult, decide and take steps to benefit from the scheme — a year or even two as the timeline would have been good– so each side could harness the benefits. After all doesn’t the government wait for remittances coming in from overseas Pakistanis on weeks, months, and on a 12-month timescale?
Notwithstanding the urgent need for hard cash as the Titanic of Pakistan’s economy is about 60 days away from crashing into the iceberg according to Dr. Farrukh Saleem, the government and the FATF have created a 15 month window to close gaps and loopholes on money-laundering and its manifestations. If the Amnesty also addresses such issues, it could run parallel.
The government and asset holders are somewhat now pitched against each other due to time-crunch, and therefore the effort again may only yield diminishing returns whereas the objective was maximization.
The concept of “time extension” generally hangs like the Sword of Damocles, and like any project which has a crash original schedule and incremental time extensions following it, leads to ‘uncertainty’ environment.
Fatigue and creep cycle seems to have crept into the whole idea — having yielded no substantial results previously and made the process predictable on failure plane — this the thought-leaders should have taken into account as a major issue in their “what if scenario” discussions.
We had suggested concurrent focus — if not the main focus, on tapping overseas Pakistanis to collectively invest, creation of special platforms for them, special stock exchange, bonds, publicly traded companies, etc. The key to success is a “partnering” and not an “adversarial” environment. Monetizing each others strength while giving space to the other is a win-win formula for an enabling environment to germinate.
That’s the beef missing in the Bun Kabab (Beef Burger). No pun intended.
(The writer is a consultant, analyst and Editor/Publisher of PKonweb.com, DesPardes.com and BE2C2 Report)