Critics of the government argue that the failure of the media to pick up on the Prime Minister's statement may be attributable to the fact that he is (i) unlikely to offer an amnesty that would compel some more senior members of his own party or their immediate family members to admit to or declare the massive amount of assets they have abroad - a line of action that would be mirrored by non-political figures who hold assets abroad; and (ii) unlikely to convince anyone, a Pakistani national or a foreigner, to remit money to Pakistan given the state of the economy today. Pakistan is grappling with a rising trade imbalance, and borrowing at very expensive rates from the external banking sector with an amortization period of a maximum of around one year that would no doubt compel the next government to seek yet another International Monetary Fund programme, and a rising budget deficit - an almost standard outcome of an election year in Pakistan. True foreign portfolio investment is rising but it is relevant to note that foreign portfolio investment can leave overnight, the reason behind the 1977 Asian financial crisis, and to rely on its permanence would be extremely naive on the part of the latest batch of economic advisors. In this context, it is relevant to note that as Prime Minister Shahid Khaqan Abbasi was presenting a rosy picture of the state of our economy at the World Economic Forum at Davos, supported by four members of his cabinet, regurgitating the benefits of the China Pakistan Economic Corridor (CPEC), insisting that clean energy is now available in Pakistan and inviting foreign investment, as did his predecessors, yet the same day Fitch revised the Outlook Pakistan's long term foreign and local currency issuer default ratings to negative from stable.
But what if the amnesty scheme fails to convince those who hold assets abroad to declare them then what is the line of action available to the government? The Federal Board of Revenue (FBR) could take a punitive action that would entail seizure of assets held in the country at best or a jail sentence at worst. However to date the FBR's performance in terms of going after influentials, especially the politically powerful, has been abysmal - an example being the tongue lashing the FBR officials got routinely during the Panama hearings by the Honourable Judges. Additionally, those who are not influential but are wealthy have accused FBR officials of pressurizing them to defraud the exchequer even when they were willing to pay their due taxes. Shaukat Tarin, former Finance Minister, had accused the FBR of being responsible for 500 billion rupee annual leakage due to corruption.
Ishaq Dar, perhaps in tacit acknowledgement of the veracity of Tarin's charge, began to rely increasingly on withholding taxes, not collected by FBR but by withholding agents, as the major source of generating higher revenue. This reliance accounts for a filer paying additional tax on his income if he accesses a service for example a travel agent, while a non-filer, who does not pay any income tax, would pay a flat higher rate. However, it is relevant to note that this law has not made it more attractive for a non-filer to opt for filing his returns as by and large the preference remains on remaining outside the tax net but pay the higher withholding tax rate. In other words, the withholding tax unfairly taxes a filer's income again and again and there is therefore a dire need to change the tax structure that remains unfair, inequitable and anomalous with, unfortunately, the ease of collection continuing to determine our tax policies.
Dar however was adept at signing treaties, if that was a requirement for accessing loans, though his track record on implementation was appalling. On 14th September 2016, Dar signed a multilateral OECD convention on anti-bribery enabling Islamabad amidst much fanfare to exchange information relating to kickbacks and corruption money with 40 countries which would have become operational by end 2017 or early 2018 though there is little to show if any such activity has taken place. Additionally, even though Switzerland was one of the 40 signatories of the OECD convention and had signed and implemented legislation as far back as in May 2000 yet the then federal cabinet led by Nawaz Sharif inexplicably decided to seek a bilateral treaty with Switzerland. According to Dar in his statement to the National Assembly total funds linked to Pakistani nationals in Swiss banks was around 200 billion dollars. Dar's reason given on the floor of the House: there was a long wish list from Swiss authorities seeking a reduction in tax rates, exemptions and other incentives but Pakistan refused to entertain these demands so both sides agreed to finalize the initial revised agreement. To Dar's critics - and they have been growing in numbers exponentially ever since his disappearance from the country - this could be to use these accounts as leverage against political opponents, or to protect the party leadership/supporters and give them a chance to move their assets to more secure offshore accounts.
The question that has emerged in recent years for several countries including Pakistan is how to lure those of its nationals who hold assets abroad - liquid and not liquid - to repatriate them and subsequent to the end of the amnesty period to begin to pay tax on them. To be successful an amnesty scheme must be a one off, to ensure that those it targets are convinced that the amnesty would not be on offer again and that once the scheme has lapsed the government would proactively seek to identify assets held abroad by nationals/companies and compel them to repatriate their assets. For the incumbent PML-N administration, this amnesty would be the fourth in just four and a half years - not a good track record. Second, all major entities dealing with an aspect of the economy are headed by Dar appointees/loyalists including the FBR and the State Bank of Pakistan - two institutions required to act impartially if the government is serious about going after any individual/company with assets abroad. It is little wonder that accusations of victimization abound. And finally, there appears to be no will on the part of the ruling party to implement policies that maybe used against their leader Nawaz Sharif or any member of his family and hence little if any change is likely.
To conclude, something fundamental has to change with respect to the tax structure and governance in related institutions and sadly an election year is not the time that any government would consider such changes. While one can appreciate the efforts of Haroon Akhtar Khan, Special Assistant to Prime Minister of Revenue, in this regard yet his ability to make far-reaching changes is severely limited by the interests of the party leadership especially with elections less than six months away.