Snaring tax cheats may help Pak assets attract billions

Bloomberg

Pakistan is mulling a tax amnesty to bring back wealth hidden in foreign assets, a move that may boost stocks, bonds and property.
The government is considering submissions by Pakistan’s business community seeking relief on undeclared offshore holdings, said Syed Masoud Ali Naqvi, a member of government’s Tax Reformers Implementation and Monitoring Committee. No plan has yet been approved or finalized, he said.
The proposal, if implemented, could help boost revenue and offset the risk of fiscal slippage before next year’s national elections, Hasnain Malik, a Dubai-based analyst with Exotix Partners LLP, a frontier-market investment boutique, wrote in a research note last week. It may also offer respite for Pakistani equities, which have trailed the MSCI Frontier Emerging Markets Index this year after being Asia’s best performers in 2016.
“Liquidity in the stock market and real estate should increase significantly, even based on conservative forecasts,” Shiraz Zaidi, research head at Karachi-based brokerage Arif Habib Ltd., said by phone. “The fact that other countries have implemented a tax amnesty makes this legislation more likely.”
The KSE100 Index dropped 1.5 percent to a four-month low at 9:41 a.m. in Karachi. Political turmoil has weighed on the nation’s stocks, with the Supreme Court deliberating a corruption case that was brought against Prime Minister Nawaz Sharif and his family. The court is set to announce a verdict Thursday.
Pakistan could collect about $3.5 billion in tax revenue, equivalent to 1 percent of nominal gross domestic product, if 30 percent of the undeclared foreign assets are disclosed
and an average 8.5 percent tax is levied, Exotix said, citing Argentina’s recent success.
Argentina raked in $116.8 billion, almost six times more than it expected, from an amnesty on unregistered funds held abroad, the nation’s tax agency head Alberto Abad told reporters in Buenos Aires on April 5. President Mauricio Macri announced the amnesty in May to help capture a fraction of as much as $500 billion in funds believed to be stashed abroad.

HIDDEN ASSETS
Pakistanis hold $150 billion in undeclared offshore assets, according to an estimate by Syed Muhammad Shabbar Zaidi, a partner at 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 Zaidi.