Does Pakistan need another amnesty scheme along Indonesian lines?

The year so far has brought big changes for the real estate sector. Whether one likes the new regime or not, a large number of new changes were announced that are bound to modify the structure of real estate in particular and Pakistani economy in general.

The trend of increased regularisation

The general trend has been towards the increased regularisation, documentation, and wider tax net – a trend set by the previous government, in the past two years, which is expected to continue. Indeed the agenda of the new government has been to announce even more assertive plans for taxation – this has been something expressed by both the incumbent Prime Minister and Finance Minister in their different speeches.

Federal Board of Revenue (FBR) has been sending notices and it is expected to become even more active about it. The board has also made agreements with Organisation for Economic Co-operation and Development (OECD) countries to gather data on foreign assets. It is expected that more will be done on this in future as well.

Moreover, recently, Directorate General Immovable Properties (DG IMP) was announced. This is expected to bring into force a number of changes announced earlier in the year including the replacement of DC rates and FBR rates with declared value of property and the ability for DG IMP to buy off suspected undervalued properties from buyers by paying double the declared value.

Tax Amnesty 2018

Tax Amnesty 2018 had been announced particularly for the very purposes mentioned. It was an ambitious plan by the former government, where it was supposed to serve two primary purposes: (i) Broadening the tax net; (ii) Repatriation of foreign assets while allowing public the opportunity to whiten the black money and declare all the undeclared assets.

While the amnesty scheme was more successful than any of the preceding amnesty schemes, the number of people who availed the scheme was still not particularly high as people either did not feel incentivised enough or were unable to apply for the amnesty scheme as the amnesty scheme was, perhaps, too short-lived.

A new amnesty scheme along Indonesian lines?

Currently, there have, indeed, been talks that the authorities may be planning another amnesty scheme. Whether or not there is any truth to the matter, there have been demands from some real estate quarters of an amnesty scheme – a kind of reset that will allow the old real estate setup to legally continue under the new regime. Moreover, even during Tax Amnesty 2018, there had been demands and suggestions that Pakistan should follow the Indonesian model for tax amnesty because these amnesty schemes are too short in their duration. The Indonesian amnesty, the largest in the world, spanned a whole year.

The pattern followed in Indonesian tax amnesty was that it allowed taxpayers to declare their assets and pay a defined amount in exchange for exemption from penalties on tax liability relating to a previous tax period, hence whitening their assets.

The amnesty allowed a redemption levy to be imposed on such declared assets based on rates ranging from 2% to 10%. The rates themselves depended on how soon the amnesty was availed and whether or not it was repatriated.

If for example you availed the amnesty in the first three months for assets declared and repatriated (whether on-shore, or off-shore) you had to pay just 2% levy but this amount increased to 5% nine months later, during the last three months of the amnesty scheme. The amount also increased (up to 10%) if the assets were repatriated. One of the incredible things about the amnesty was that it incentivised how early you declared your assets and it was almost a year long. Something that contributed to its good results.

In Pakistan, something similar has been both demanded, and may perhaps still be needed before the government succeeds in its plans to completely regularise real estate and thoroughly document the economy. Indeed, with punitive measures planned, something of an incentive is imperative, if the government wishes for the continued health of economy and real estate even while both go through increasing documentation.

What is your opinion on the matter? You can talk to us in the comments section. You can also head to the Zameen Forum for a detailed conversation.