Amnesty and other stuff

So we have a new boss for the economy, and will pretty soon have a new finance team; best wishes to them, with a sincere wish that they succeed in steering the economy out of the current perfect storm. On a pragmatic note, unless the new team has Aladdin's lamp, it ain't gonna be a walk through the park, irrespective. As pointed out last week, rupee depreciation and price escalation in utilities was not a choice, it was a necessity. And perhaps the worse is not over yet.
If you believe what you hear on the grapevine, the probable remedial actions expected in the IMF's coming program will possibly further elevate the hardships of the general populace. Free floating the rupee can, most likely will, have an adverse continuing impact on rupee value considering that we seemingly have no solution for the trade deficit. The economic theory which argues that a depreciating rupee will result in a decrease in imports and increase in exports is just that, a theory, which probably only works in the mythical world of economics. If only oil prices go up, guess what happens?
Elimination, or even reduction, of all kind of subsidies isn't going to help the masses either. And if the IMF insists upon the government controlling the fiscal deficit, it will mean bye-bye to any kind of development expenditure. One is generally clueless on what kind of magic IMF will suggest for getting GDP growing again, their favourite indicator; but one thing is for sure, we will end up selling all profitable State Owned Enterprises at a discount, where we will guarantee returns to the foreign investor and pay for golden handshakes to boot. Most likely three years down we will be worse off. That may sound pessimistic, but hey, it's a prediction which even I wish turns out to be false!
If we are ever going to move towards a sustainable economic growth model, we need to take a few hard decisions as a nation, while taking care to insulate the downtrodden of the society from financial hardship as much as we can. Except, squeezing out taxes from all and sundry to meet the budget targets is perhaps not a good strategy. Just this morning, a friend who operates a restaurant in Islamabad was complaining about continued harassment by the tax collector, with the end result that all restaurants in Islamabad were seriously considering a shutdown strike for a week. Shutting down businesses to get taxes is a strange strategy to accelerate economic growth; a better strategy would be to implement policies which allow small and medium enterprises to transit to the formal economy amicably.
Perhaps the reason the argument posited by the previous finance minister for dreaming up another amnesty scheme appeared rational; notwithstanding the drama created by some celebrity anchors on the idiot box. If graft was the only way to do business before, penalizing businesses now, without giving them an opportunity to come clean will result in every entrepreneur either going to jail or shutting down shop. Accordingly, there is an urgent need to provide an opportunity for the informal sector to join the documented economy, irrespective of the political fallout of such a decision.
Albeit if you do something, do it right or don't do it. What we need is a genuine amnesty; and that by the way is nothing like a genuine democracy which in my opinion is a fictional construct. If the government does decide to offer another amnesty, the suggestion is that it should have what I would refer to as a grandfather clause; across the board without any fine print. Albeit, the tax rate should mirror the current tax rate, around 30-35%; the argument is simple, at 5% it still feels like cheating. Paying the tax rate might juts clear the conscious, and perhaps provide the confidence that you have, for want of a better phrase, paid for your sins. And, while not the best, a possible solution for the moral hazard problem.
Across the board is simple to understand, but this is what every sitting government has a problem with. Anybody, irrespective of whether being tried or even convicted, pays the 30% and goes scot free; without any kind of repercussions whatsoever. No, this suggestion is not politically motivated in any manner; if an amnesty allows FBR, or any other authority, to questions the source for any reason whatsoever, most will not opt for the amnesty. And logically, any undisclosed assets or income, will more likely than not have PEP involved at some point, either directly or indirectly.
The ultimate objective, by the way, is not to collect revenue, but to bury the past!
Probably, no one is listening, rather reading; and this idea will probably not take off either. But I suppose, for my part, no harm writing about the amnesty and other stuff.
(The writer is a chartered accountant based in Islamabad. Email: [email protected])