Tax amnesty to regularize undeclared assets approved by Pakistan cabinet
- Only a million people out of a population of more than 208 million pay income tax in Pakistan
- Recently signed IMF bailout plan requires government to squeeze around $5 billion in extra taxes
ISLAMABAD: Pakistan’s government on Tuesday announced a new tax amnesty scheme aimed at broadening the government’s revenue base in a country where only about 1 percent of the adult population are taxpayers.
The amnesty scheme will last until June 30 and is due to take effect before the annual budget is announced this month. The scheme will allow all Pakistani citizens, except public office holders and their spouses, who have hidden assets to declare them by paying 4 percent tax on domestic and 6 percent tax on offshore assets.
“This scheme’s basic purpose is not to generate revenue … it is for documentation of the economy and bringing dead assets into the economy to make them functional,” Dr Abdul hafeez Shaikh, the prime minister’s advisor on finance, said at a press conference here.
Pakistan’s $300 billion economy faces a ballooning current account deficit and dwindling foreign exchange reserves due to rising imports, low revenue collection and loss making state owned enterprises.
On Sunday, Pakistan reached an accord with the International Monetary Fund for a three-year, $6 billion bailout package aimed at shoring up fragile public finances and strengthening a slowing economy.
The program envisages reforms to improve public finances and cut public debt, including “revenue mobilization measures to eliminate exemptions, curtail special treatments, and improve tax administration,” the IMF statement said.
“We have tried to make this [amnesty] scheme very easy to understand and implement,” Shaikh said, saying people should not be frightened by the schele but encouraged to become part of the legal economy.
“This is the last chance for Pakistanis to benefit from the scheme,” he said, hinting a crackdown against those who failed to declare their hidden domestic and offshore assets. “If an asset has not been declared, then it can be confiscated and the person can go to jail.”
One of the world’s lowest tax collection rates partly help explain the shoddy state of Pakistan’s hospitals and schools, and why the illiteracy rate hovers above 40 percent in the mainly Muslim nation of 208 million people.
PM Khan, who took power in August, has vowed to double tax collection by reforming the Federal Bureau of Revenue, institution responsible for tax collection. One of Khan’s first acts as premier was to replace the FBR chief. This month, he once again changed the FBR chief, unhappy with collection numbers.
Pakistan’s history is littered with statements by incoming governments announcing crackdowns and pledging tax reforms that fizzle out because of a lack of political will to force the rich and powerful to pay taxes.