YES From Moody’s, the International Credit Rating Agency, For Tax Amnesty Scheme
YES From Moody’s, the International Credit Rating Agency, For Tax Amnesty Scheme: Pakistan’s tax amnesty scheme would increase the government’s revenue base and alleviate fiscal pressure from its low revenue generation capacity and increasing capital expenditures for the China Pakistan Economic Corridor (CPEC).
Only 1.2 million file income tax returns, of which only 700,000 paid taxes, according to the government’s latest estimate. Pakistan’s credit profile is consistently constrained by its weak tax revenue generation: the government has not recorded a fiscal surplus in the past 25 years.
Pakistan is facing external pressures, with higher imports largely from CPEC weighing on the current account and foreign reserves. Moody’s said Pakistan, with less than 10% of tax to GDP ratio, has one of the weakest tax generation capacities in Asia Pacific and so “broadening the tax base by including previously undeclared assets would alleviate Pakistan’s ongoing fiscal pressures”.
The tax scheme targets increase in number of tax return filers from the miniscule 1.2 million. Of the total return filers, alone 700,000 paid taxes. US credit rating agency Moody’s Investors Service stated that tax amnesty scheme is likely to jack up revenue by 0.3 percent to one percent of GDP till June-end, which would give a relief to the country that faces fiscal and current account pressures.
Government has announced tax amnesty scheme, which would expire by June to benefit tax payers who have undeclared local assets with a five% penalty, undeclared foreign assets with a 2% penalty and a 3% penalty on both local and foreign undeclared assets. Penalty rates on foreign liquid assets are similar to those in Indonesia’s 2016-17 tax-amnesty schemes.
Moody’s said it is the first tax amnesty targeting foreign assets estimated at $150 billion or 45% of the country’s economy size. Pakistan has previously launched tax-amnesty schemes for businesses and the real estate sector. The credit rating agency termed the scheme as credit-positive, which is part of the government’s broader tax reform package.
The success of this scheme also depends on whether residents expect future tax amnesty schemes with similar incentives, which could lower the uptake of the current scheme.
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