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Pakistan’s tax amnesty scheme may increase revenue base: Moody’s

Pakistan’s tax-amnesty scheme, if successful, would increase the government’s revenue base, said international credit rating agency Moody’s in a statement on Thursday.

“The new scheme can alleviate fiscal pressure from its low revenue generation capacity. It will help increasing capital expenditures for the China-Pakistan Economic Corridor (CPEC).”

The statement said that repatriation of liquid foreign assets would also ease balance-of-payment pressure. “This is Pakistan’s first tax-amnesty scheme to target foreign assets.”

The low penalty rates, particularly for repatriated assets, increase the likelihood of the scheme’s success, it said, adding that broadening the tax base by including previously undeclared assets would alleviate Pakistan’s ongoing fiscal pressures.

“Pakistan’s credit profile is consistently constrained by its weak tax revenue generation. The government has not recorded a fiscal surplus in the past 25 years. A successful tax-amnesty scheme would provide a one-off benefit to government revenue.”

“Penalty rates on foreign liquid assets are similar to those in Indonesia’s (Baa3 positive) 2016-17 tax-amnesty scheme. Pakistan is facing external pressures, with higher imports largely from CPEC weighing on the current account and foreign reserves.”

Central bank has allowed the currency to depreciate by about 9% in total. Interest rate raised policy rates 25 basis points to cool domestic demand. Foreign reserves continue to decline and reached a 34-month low in March 2018.

Prime Minister Shahid Khaqan Abbasi had unveiled a tax reforms package on Thursday, which included a tax amnesty scheme for undeclared foreign and domestic assets, and reduction in income tax rates.

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