Taxing foreign assets

Before the last sunset of 2022, the Sindh High Court threw out a sheaf of legal challenges to a government move to impose a CVT on movable and immovable properties held by resident Pakistanis abroad. You would expect the move to hardly ruffle a feather considering that the prospective tax has a minuscule rate of one per cent and it applies to assets worth over Rs100 million. As well, it is in consonance with modern global taxation best practice, and therefore, a small step in the right direction. But as if just to prove that taxing the super rich is never going to be easy, legal challenges were mounted, which were based on unsound legal grounds and so now stand defeated.

The cat-and-mouse game between the taxman and the moneyman is as old as civilization itself. Who is winning this game is amply clear when you consider that as of 2022, the richest 10 per cent of humanity owned 76 per cent of all wealth, while the poorest half made do with just two per cent of it. The world as we know it is shaped by the innate human drive to acquire and amass worldly possessions. Driven men and women have been able to accumulate great fortunes throughout history against all odds, even under regimes not amenable to personal wealth. None of the foregoing means we are about to advocate an economy of envy. On the contrary, we are all for people making and holding fortunes and enjoying the finer things in life. But we also support people paying their due taxes – including the taxes the authorities have recently imposed on assets held and income earned abroad by resident Pakistanis.

It is a well-known fact that well-heeled Pakistanis spend substantial money travelling and living abroad, largely supported by incomes earned in the country. What’s more, the elite have taken to parking their wealth abroad. Companies based in tax havens like Panama, British Virgin Islands, Luxembourg, and Dubai, controlled by Pakistanis, own businesses and immovable properties in all parts of the world, giving the lie to the impoverished image of the country. In Dubai in particular, Pakistanis are among the top national groups of investors. Multiple reliable reports have consistently put Pakistanis among the top national groups investing in the Gulf sheikdom. As recently as in May 2022, they were the third largest group investing in Dubai. The trend is at least a decade old. Officially published data shows Pakistanis invested about 1.4 billion AED in Dubai properties in the first quarter of 2015 alone, and the trend has only intensified in the intervening years. This is not to find fault with Pakistanis investing and spending abroad per se. Only, now is the time for that wealth and income to reflect in their tax returns back home, which is pretty much all the government’s current initiatives hope to achieve.

It is now up to the government to put its foot down and follow through with enforcement action where necessary. A mere one per cent CVT on movable and immovable properties held by resident Pakistanis abroad will hardly be a windfall, especially as it applies to assets worth over Rs100 million. But for a country whose tax-to-GDP ratio has languished around the 10 per cent mark for a few years, the mere symbolism of this opportunity cannot be overlooked. We need revenue to fund healthcare, education, and development. We need revenue to balance out the budget. The IMF, whose lifeline is keeping the country afloat on its external obligations, has been holding the government under the gun to clean up its act and turn up the primary surplus it promised. We need revenue to pay up the price of development, which is how a top government member described our foreign debt a while back. Firm and steady action on the measure should get several important messages across including the government’s resolve to mobilize every last bit of revenue it can, and the need for all of us to pay our way.