Amnesty or referendum?
WITH three separate televised appeals to urge people to participate, Prime Minister Imran Khan has turned his amnesty scheme into a referendum of sorts on his government’s impending tax plan for the next fiscal year.
The scheme is step one of a very aggressive revenue collection drive set to kick off in the new fiscal year on July 1, an exercise that will give us raids, accounts frozen, tax notices and blocked refunds galore once July 1 rolls around. The combined strength of the government’s finance team went on air a few days ago to urge people to declare their hidden assets and get themselves registered. They were joined by the prime minister briefly.
The government’s message is that a window of opportunity has been opened briefly to give one last chance to those who have undeclared wealth to bring it forward and enter the net. Once the window closes it will be no more Mr Nice Guy. After that, they will pursue all undeclared wealth, including at some points, threatening prosecutions and confiscation of assets held as benami.
The reason this has turned into a referendum is because if the response to the appeals for the amnesty scheme is weak, the credibility of the entire tax effort to follow will be challenged at the very outset. A weak response will basically mean that people have called the government’s bluff. ‘Come and get us’ they’ll be telling the government. In that case, the government will be in a quandary. It has a historic jump to make in tax revenues for next year, and being under an IMF programme will limit its ability to bridge shortfalls through borrowing. If people call its bluff on the whole thing, there will be few options left but to deliver on its tough rhetoric.
If the response to the appeals for the amnesty scheme is weak, the credibility of the entire tax effort to follow will be challenged at the very outset.
Unlike a proper referendum though, there is no clear ‘yes’ or ‘no’ outcome here. How does one determine whether or not an amnesty scheme has been ‘successful’? There are at least three, if not four, criteria that can be relied upon. You could look at the number of declarants (the number of people who availed the scheme’s offer), or the amount of tax revenue that was collected through the scheme, or the rupee value of the assets that were declared through the scheme, or the amount of foreign exchange that was remitted back into the country as a result of foreign asset declarations where the declarant opted to remit the funds back to Pakistan.
So what would be good numbers in this case? We could look at how the last amnesty scheme held in June and July 2018 worked out for a benchmark. That scheme began on April 10 and was supposed to run till June 30, but was extended initially till July 11, and then again July 30 on the demand of the business community. By June 10, it saw a weak response, with reports suggesting the number of declarants was in the hundreds and a few hundred million rupees worth of tax had been collected till then. The Supreme Court was examining the scheme and declarants were waiting for the court’s nod before doing anything. The court’s nod for the scheme came on June 12, after which the rate of participation picked up.
A month later, by July 11, the government released its first numbers regarding the response. More than 55,000 declarations had been made by that date, and foreign assets worth Rs577 billion (at the July exchange rate) were declared while Rs1,192bn worth of domestic assets had been declared. Rs97bn had been collected in tax, with Rs36bn of that being on foreign assets declared through the scheme. The amount of foreign exchange remitted was a mere $40 million, however. “This response to the amnesty scheme has been unprecedented” the statement issued by the interim government said. By the time the scheme ended on July 30, the number of declarants had risen to more than 80,000 and the tax collected was closer to Rs124bn.
The one month between the Supreme Court nod (given on June 12) and the data released on July 11 can be a credible benchmark for the scheme currently under way. Another benchmark could be the government’s own expectations. For example, an article published in the Khaleej Times on June 26 quotes Muhammad Ashfaq Ahmed, chief of International Taxes at the FBR, saying the government expects up to Rs1 trillion worth of foreign assets to be declared through the scheme.
Another benchmark could be the amount of tax collected under the scheme. Government ministers are at pains to say that revenue is not the purpose but one would have to be quite innocent to take that claim at face value. The government was expected to announce a revenue target from new taxes equal to somewhere around Rs700bn, but instead, the budget carries new tax proposals worth around Rs550bn. It is possible that the difference is expected to be made up by the amnesty scheme, which would suggest they are looking for revenues upwards of Rs150bn from it. Maybe because of this reason they have allowed people to declare today and pay later, so that the revenues collected through the scheme can be counted as next fiscal year’s revenues (aside from the convenience of paying later).
So if the scheme yields anything less than 55,000 declarants, and less than Rs150bn in revenue, and less than Rs1tr in foreign assets declared, there are grounds for considering that people have called the government’s bluff. The further south of these numbers the final outturn, the greater the defeat the government’s revenue plan would have suffered in this referendum. A flop in the amnesty scheme will hobble the revenue effort of PTI Reloaded at the very outset, putting it on a rough-and-tumble course in the first year of its IMF programme. Let’s hope they actually release the final data so we all have a clear picture.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, June 27th, 2019