BY BLOOMBERG | UPDATED: APR 19, 2017, 12.52 PM
IST
By
Sid Verma and Ismail Dilawar
Pakistan is mulling a tax amnesty to bring back
wealth hidden in foreign assets, a move that may boost stocks, bonds and
property.
The government is considering submissions by
Pakistan’s business community seeking relief on undeclared offshore holdings,
said Syed Masoud Ali Naqvi, a member of the government’s Tax Reformers
Implementation and Monitoring Committee. No plan has yet been approved or
finalized, he said
The
proposal, if implemented, could help boost revenue and offset the risk of
fiscal slippage before next year’s national elections, Hasnain Malik, an
analyst with Exotix Partners LLP, a frontier-market investment boutique, wrote
in a research note last week. It may also offer respite for Pakistani equities,
which have trailed the MSCI Frontier Emerging Markets Index this year after
being Asia’s best performers in 2016.
“Liquidity in the stock market and real estate should
increase significantly, even based on conservative forecasts,” Shiraz Zaidi,
research head at Karachi-based brokerage Arif Habib Ltd., said by phone. “The
fact that other countries have implemented a tax amnesty makes this legislation
more likely.”
The KSE100 Index dropped 1.5 per cent to a
four-month low at 9:41 a.m. in Karachi. Political turmoil has weighed on the
nation’s stocks, with the Supreme Court deliberating a corruption case that was
brought against Prime Minister Nawaz Sharif and his family. The court is set to
announce a verdict Thursday.
Pakistan could collect about $3.5 billion in tax revenue,
equivalent to 1 per cent of nominal gross domestic product, if 30 per cent of
the undeclared foreign assets are disclosed and an average 8.5 per cent tax is
levied, Exotix said, citing Argentina’s recent success.
Argentina raked in $116.8 billion, almost six
times more than it expected, from an amnesty on unregistered funds held abroad,
the nation’s tax agency head Alberto Abad told reporters in Buenos Aires on
April 5. President Mauricio Macri announced the amnesty in May to help capture
a fraction of as much as $500 billion in funds believed to be stashed abroad.
Hidden Assets
Pakistanis hold $150 billion in undeclared
offshore assets, according to an estimate by Syed Muhammad Shabbar Zaidi, a
partner at A.F. Ferguson & Co., an affiliate of PricewaterhouseCoopers LLP.
The stash comprises $80 billion in property and bank deposits, $20 billion in
local stocks held in foreign accounts -- about a fifth of the bourse’s market
value -- and $50 billion in assets such as manufacturing concerns, according
Zaidi.
About 1 per cent of Pakistan’s 200 million
people pay taxes, and previous amnesty programs have failed to significantly
widen the base. The country has one of the lowest tax-to-GDP ratios in South
Asia despite reforms introduced as part of International Monetary Fund’s $6.6
billion loan program that ended in September, such as reducing breaks and
cutting evasion.
Less than 0.3 per cent of the nation’s 3 million
goods traders participated in the tax amnesty program launched in April last
year, well below the 17 per cent forecast by the government when it began in
January. It generated only 750 million rupees ($7.2 million) in back taxes
after four deadline extensions.
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