Pakistan has introduced another amnesty scheme for tax evaders – but why?

A new amnesty scheme is being considered to allow those who hold wealth abroad to bring it back into the country without facing a penalty other than paying a nominal amount of tax on the value of the declared asset. If approved, this would be the fourth or fifth amnesty offered by this government, depending on how one defines the term.

This time, the step is made necessary by the arrival of a new tax convention created by the Organisation for Economic Cooperation and Development, which mandates the sharing of tax information with other countries. Once the convention is in force, the state here will be able to directly access records of bank accounts, registered companies and other assets maintained by Pakistanis abroad, and, in turn, will be compelled to share such information with foreign governments.

This exchange is tied to bilateral agreements at the moment, but come 2018, Pakistan could be part of a global regime to automatically share tax-related data with signatory countries. The government has already begun searching for ways to motivate people to start thinking of declaring their foreign assets against a nominal tax.

Not many people are afraid of the bilateral sharing mechanisms in place today, but once automatic sharing kicks in there will be genuine grounds for concern for those who hold undeclared wealth in offshore locations. For now though, it appears the impending amnesty scheme for foreign assets will be nothing more than what its predecessors have been: thinly veiled revenue measures.

Repeat attempts

The long list of such revenue measures disguised as amnesty schemes and documentation exercises now give the government the appearance of pleading for cooperation with racketeers and tax evaders. The total lack of will and capacity to pursue any meaningful reform and expand the tax base has driven the government into this corner. Now a new challenge is beginning to open up in the form of global regimes for the sharing of tax information, as well as closing the financial system to abuse by illicit and tax-evaded wealth.

The Organisation for Economic Cooperation and Development convention is only the latest example. Before this, we had an Anti Money Laundering Act, which had to be amended to include tax evasion as well. That too was prompted by a tightening of the regimes that seek to choke off access to the financial system for illicit players. Failure to properly move on that front is complicating corresponding banking relationships for many Pakistani banks. The State Bank has recently cautioned that these complications could raise transactions costs for banks, which could impact remittances.

Being a nursery of rackets is becoming more and more difficult for Pakistan given how global financial and tax regimes are evolving. If the will and capacity to drain the swamp of black money cannot be found, costs in the future could be severe.

This aricle first appeared on Dawn.