Legalising secret forex holdings

The government has finally acted to do something about capital flight, albeit in a half-hearted manner. The Federal Board of Revenue (FBR) issued a special circular on Friday amending the Investment Tax Scheme, 2008, to specify that the term 'cash' in the scheme would cover foreign currency as well.
And those holding undisclosed foreign currency would be able to legalise it on payment of 2 percent tax. For calculation of 2 percent tax payable thereon, says the circular, the amount is to be converted into Pak rupees at the June 30 exchange rate.
It has been a while since the government took note of the high rate of capital flight and conducted a joint investigation with the State Bank to discover that Pakistanis were investing heavily in the Gulf states' real estate market. Attractive investment opportunities together with a stable rupee exchange rate had encouraged the activity. It picked up momentum during the recent months as, wary of unending political uncertainty and rupee depreciation, wealthy Pakistanis started transferring their money to different destinations abroad in violation of the rules that require the central bank's approval for such transfers.
Economic difficulties and an alarming decline in forex reserves have now pushed the government to do something about the situation, emphasising also that the legal/moral aspects of the issue be ignored and succor summoned from the source. The amendment in the FBR scheme, hence, is a belated but much needed step in the right direction.
Yet, it raises some important questions and concerns, though. As a Recorder Report points out, it is unclear whether or not foreign currencies held abroad have to be transferred to Pakistan for legalisation on payment of two percent tax. Or, if the offer is available to foreign currency holders in Pakistan only. The FBR needs to clear the confusion. More importantly, it must also state what it intends to do with those who may want to simply shrug off the offer, which possibility may lead to the obvious conclusion that the scheme is not going to be helpful unless accompanied by some sort of punitive measures for non-compliance.
Those holding large amounts of foreign currency within Pakistan may be tempted to put it in banks for safe keeping; the freezing of foreign currency accounts in the aftermath of 1998 nuclear explosions though might lead to evasion. That calls for a firm assurance that the past mistake would not be repeated. The government must come up with a clear plan to deal with all aspects of the issue.