Pakistan's Stocks Rally After Amnesty to Lure Overseas Money
(Bloomberg) -- Pakistan’s stocks rose to the highest in eight months after Prime Minister Shahid Khaqan Abbasi announced an amnesty scheme and income tax cuts aimed at combating rampant avoidance in an attempt to shore up the country’s deteriorating finances.
The government has proposed a one-time amnesty scheme allowing Pakistanis to repatriate funds from overseas after paying a 2 percent cash tax till June, Abbasi told reporters in Islamabad on Thursday. The nation’s benchmark KSE100 Index gained as much as 1.3 percent in Karachi on Friday.
“Unlike the past ones, this would be one of Pakistan’s most successful amnesty schemes,” said Muzzammil Aslam, chief executive officer at EFG Hermes Pakistan Ltd. “The way this amnesty scheme has been designed, specially its rate -- is next to free” for cash repatriation. Though many “will not take the risk to bring their assets back to Pakistan.”
Lenders including the International Monetary Fund have repeatedly shown concern over Pakistan’s tax-to-GDP ratio of about 12 percent, which is among the lowest globally and less than 1 percent of the nation’s 200 million people pay taxes. Past attempts to force people to pay taxes have been met with resistance and strikes by businesses, while various amnesty plans have failed to boost revenues.
“Pay your taxes,” said Abbasi, who flagged the new amnesty and tax plans to Bloomberg in an interview in February. “The nation can’t progress without paying taxes.”
Abbasi said income-tax rates would be slashed to between 5 percent to 15 percent from a maximum of 30 percent and the government would use a national database to profile citizens in a bid to clampdown on non-payers from the fiscal year starting July.
The opposition groups including the Pakistan Peoples Party -- co-led by former President Asif Ali Zardari and Chairman Bilawal Bhutto Zardari -- and the Pakistan Tehreek-e-Insaf of former cricket star Imran Khan, opposed the amnesty plan. The plan “will be opposed in Parliament,” Raza Rabbani, an opposition leader, said in a statement. “Such schemes are a license for big business to commit illegal acts and then get the opportunity of legalizing their ill-gotten wealth.”
With elections scheduled for July or August, the South Asian nation has been weathering political instability and economic stress for the past year. Pakistan’s current account deficit has risen by 50 percent in the eight months ended February and foreign exchange reserves are deteriorating at the fastest pace in Asia. That prompted the finance ministry to raise $2.5 billion from global bonds and sukuk in November and the central bank has also devalued the rupee twice since December.
Pakistanis hold $150 billion in undeclared offshore assets, according to an estimate by Syed Muhammad Shabbar Zaidi, a partner at Karachi-based A.F. Ferguson & Co. -- an affiliate of PricewaterhouseCoopers LLP. The stash comprises $80 billion in property and bank deposits, $20 billion in local stocks held in foreign accounts -- about a fifth of the bourse’s market value -- and $50 billion in assets such as manufacturing concerns, according to Zaidi.
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