Is this a good time for another tax amnesty?

Controversial as this question may seem, it’s worth deliberating. But first some context! In his March 30 address to the nation, PM Khan announced that his government has set up a bank account with National Bank of Pakistan where Pakistanis at home and abroad can deposit funds which will be used towards the welfare of the poor who are unable to make ends meet in the times of corona.

The PM Khan made two important announcements regarding the fund: (a) that it will be tax deductible; and (b) that there will be no questions asked about money deposited in the government’s designated relief account, which means the FBR, FIA and NAB will not ask questions about the source of funds.

This begs the question why would anyone sitting on undeclared cash or maintaining undeclared bank accounts would want to take the risk by contributing to the government’s corona relief fund, when no-questions-asked policy is only applicable to the size of the deposit made in that fund. Afterall, any bank deposit through cheques or through online transfer can be traced back to the account it came from, whereas cash deposits also require CNIC details confirmed in-person.

If the money comes from bank account undeclared during the 2019 amnesty, then the contributor would be eventually nabbed by the FBR. Contributors who still have undeclared domestic assets could of course ask a third person, say their household staff, to deposit huge sums in the government’s corona relief fund. But they may not have the incentive to do so since they won’t get recognition for it. Which is why they would rather support their preferred charity institution.

Therefore, the government should instead explore luring in those who still have undeclared foreign assets. Unlike the case of undeclared domestic assets, in the case of foreign assets the government only has access to information, courtesy the exchange of information with other jurisdictions. It cannot really confiscate those assets since those are outside Pakistan. All that the FBR, FIA or NAB can do is round up the tax offenders and give them a tough time through a likely long drawn legal battle that exhausts both these institutions and the tax offenders.

Perhaps, in recognition of Pakistan’s struggle with forex reserves and tax revenues, the government could consider offering a new tax amnesty only on undeclared foreign assets at much higher rate compared to the 2019 amnesty. So for instance, if the 2019 round gave amnesty at 5 percent, then the government could offer an amnesty at say 20 percent today i.e. if 20 percent of the value of the undeclared foreign asset is brought back in Pakistan in foreign currency, and deposited in the corona relief fund or any another account created for this purpose.

Understandably, the FATF and the IMF will not take this lightly. But if there is any chance to get the ball rolling in this direction, it is today when Pakistan and rest of the world are in the thick of corona. It would not hurt the government to run this idea with the FATF and the IMF. The worst answer they can get is a big ‘no’.

The Pakistani public may also not like this amnesty at a time when the poor are facing the biggest brunt of corona-led lockdown and the expected economic slowdown for months to come. They may even cringe at the idea of it. Then again, politics is the art of making possible whereas state affairs aren’t always about morality. It’s also about ensuring order and stability. If at higher tax rates foreign assets could be brought to Pakistan to help both national tax kitty and FX reserves, which in turn can help toward economic stability, then it’s worth a shot. Or at least worth deliberating.