Amnesty scheme is a fad nowadays. Tax and other amnesty schemes had been in offing for decades across the globe but with limited or no success. Lately, Indonesian scheme yielded some results and that encouraged countries with higher shades of grey wealth to think of fresh schemes. Pakistan is in the process of offering fourth scheme in three years. The previous three miserably failed.
According to A.F. Ferguson & Co., total offshore assets held by Pakistan citizens excluding Diaspora is around $150 billion. It’s hard to estimate such a number but parallels can apply from Indonesia where more than 800k evaders declared $350 billion which 40 percent of country’s GDP and Shabbar’s number is a little over 50 percent of Pakistan GDP. .
Whatever the number; but Shabbar Zaidi was spot on in his presentation that its increasingly becoming difficult for keeping undeclared assets offshore - FACTA, OECD multinational conventions, anti money laundering laws etc are making it near impossible to hold assets anywhere in the world without proper disclosure.
However, one so called avenue of remitting money back home with no question asked exists to keep hopes of black money holders alive. The laws are misunderstood by many commentators; but as Shabbar noted, there is no income tax law on remittances but any culprit can be caught through anti money laundering and other laws.
Nonetheless, in practice, apart from suspicion on terrorism financing, law enforcing agencies usually ignore big chunks of money remitting into the country. One intriguing fact is that remittances from Dubai increased from $1.6 billion in FY14 to $2.9 billion in FY16. In days of saturating home remittances from everywhere, the question is why the quantum is increasing from Dubai - its share in total remittances increased from 10 percent in FY14 to 14 percent in FY16.
Ironically, number of Pakistanis registered for overseas employment in the UAE peaked at 350K in 2014 and subsequently declined to 327k and 296K respectively in 2015 and 2016. Mind you, these numbers are only of new employees overseas and it does not incorporate the labour force coming back to the country, or moving away to other destinations.
The numbers of workers going to the UAE is declining but money coming back is increasing. It is counterintuitive. But the analysis could not be sound without detailed data - as immigration data is based on calendar year gross flows while remittances data is of fiscal year stock, and workers usually start sending money after settling down for a few months.
According to sources, 90 percent of country’s remittances transactions are below $1000 and average ticker size of transaction is $500-600. Plus, per capita money sent by an average Pakistani worker is around $2200-2300 from the UAE and KSA, while the number for India from is $4600 per capita. These numbers also suggest that majority of remittances is legit money saved by workers aboard, sent to support their families.
But there is no data publicly available to find the quantum of big ticker transactions. Yes, 90 percent transactions are below $1000; but what about the rest of 10 percent? How many are above $10K? The number of transactions might be low but the sum might be huge. Since the SBP does not share the data, conspiracies theories are bound to brew.
The question is still unanswered that what is driving higher back home from Dubai. One plausible reason could be with tightening money laundering laws globally, Dubai still has relaxed regulations, and that is why black money is routing back. But the party will soon be over as from July 2017, assets declaration laws in Dubai are going to be tightened; and it will no longer remain a safe haven from black money.
Higher money flow from Dubai partially explains why the three amnesty schemes offered so far were unsuccessful. The other reason is that people have started to shift savings from the UAE to Pakistan as returns here in real estate and stock markets are more lucrative. The bottom line is that even if black money is routing through legal channels from Dubai, it will no more remain from FY18. Hence, more reasons to announce amnesty scheme.
But what is the moral standing of amnesty scheme? Will it be challenged in the courts? Even, without delving into moral and legal challenges, declaration might be more but there would be less repatriation.
Amnesty scheme is a social taboo. Anyone availing will not be seen clean by society. That is why people would prefer to get money back at higher cost through grey channels. The challenge is to find an innovative midway. Government ministers’ own money comes through remittances. First family is awaiting verdict on Panama papers. What kind of precedence government is setting for others to opt for amnesty schemes? In Indonesia, the finance minister is the iron lady who had all the moral authority to make amnesty scheme viable. Do our leaders posses a similar stature?
These are tough questions and there is no right or wrong answer as it is all relative. Assuming we have a successful scheme this time, investment potential will surely be unlocked. The idea Shabbar presented is to declare taxes, not collection as latter will only be added benefit. According to him, actual repatriation will be only $3-4.5 billion. This number is aligned with Indonesian scheme success. Best of luck on the new scheme!