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January 8, 2018

Another amnesty


January 8, 2018

The bureaucrats at the Federal Board of Revenue seem to have nothing more to offer than old wine in new bottles. Every year, the FBR has proposed a new tax amnesty scheme, and every year the amnesty scheme has blown up in their face. But this has not deterred the suits at the FBR from offering yet another tax amnesty scheme, one that is even more controversial than those offered before. The new draft tax amnesty scheme that has been presented to Prime Minister Shahid Khaqan Abbasi pertains to the tricky question of the offshore assets of Pakistanis. The FBR is willing to let individuals who illegally moved their money and assets abroad to bring it back to Pakistan after paying three to five percent tax on the amount. Under the scheme, such individuals would be given protection against NAB, existing anti-money laundering laws and a potential reversal of the scheme. The FBR seems to suffer from the false belief that such a scheme could result in $4-6 billion in laundered money being brought back to Pakistan. The belief seems to be shared by the new finance team of Miftah Ismail and Rana Afzal. The chances of the scheme being given a constitutional guarantee through parliament remain low in the absence of a PML-N majority in the Senate.

The proposed tax amnesty scheme is designed to legalise money laundering. The only individuals who would use such a scheme are those that have illegally transferred their money and assets abroad. Apart from the obvious question of why they should be rewarded instead of punished, there is a much simpler question of why they would even consider bringing their money back. This illegal money was not sent out of Pakistan because the FBR was engaged in a crackdown on untaxed wealth. Fear was not part of the motivating factors. To deal with the issue of money laundering, the government will have to understand the logic underpinning it. Many of the richest Pakistanis have moved parts of their assets out of the country as security, insurance against risks, or as investments. Decisions regarding amnesty schemes can also undermine Pakistan’s larger commitments to a crackdown on money laundering by joining the OECD. The post-Panama Papers environment is one in which both states and citizens are united in trying to combat the challenge posed by offshore money-laundering networks. An amnesty scheme such as the one proposed would essentially means giving up the fight before it has even started, and sending all the wrong signals to Pakistanis hoarding illegal wealth outside the country. This is not the way to go forward.

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