A successful amnesty scheme

And policies that should follow

After receiving much criticism upon its inception from opposition parties and underutilisation during the first two months the PML-N government’s tax amnesty scheme to declare foreign assets has turned out to be a roaring success. Until yesterday when the scheme officially ended Rs80 billion in revenue had been raised through 5,000 filings. This figure is bound to increase as soon as the State Bank of Pakistan (SBP) – all tax remittances are being sent to SBP’s account in US dollars – settles the transactions that have piled up mostly during these past two weeks.

Largely unpopular and seen as ‘quick fixes’ to bigger problems, no amnesty scheme has ever been this successful in Pakistan’s history. Revenue collection under the current one is at least six to seven times greater than what was raised through most schemes of the past combined. Perhaps a major reason why there is an eagerness to declare foreign assets now is the commencement of the OECD automatic exchange of information in September this year under which names of non-resident Pakistanis holding accounts in other member countries would be disclosed.

A generous 2-5% tax rate makes repatriation or declaration of assets quite attractive as well.  The law also offers a robust confidentiality clause that takes care of apprehensions of most non tax payers that the scheme is merely an information gathering exercise to be used later by the FBR that has remained unable to widen the tax net through conventional means. An expected boost of $4-5 billion to foreign exchange reserves may just give us enough breathing room to avoid knocking on the IMF’s door just yet. But a worsening situation on the current account side, rising international commodity prices, abysmal tax collection numbers, falling exports and remittances; an IMF bailout remains inevitable. So while the success of this scheme can be lauded it is simply not enough unless it is followed by long term structural economic reforms. The incoming government will surely have a tough uphill task at hand when it takes charge in less than a month.