Moody’s, the international credit rating agency, has said in a statement that Pakistan’s tax-amnesty scheme, if successful, will increase the government’s revenue base.
Prime Minister Shahid Khaqan Abbasi had unveiled a five-point tax reforms package on Thursday, which included a tax amnesty scheme for undeclared foreign and domestic assets, and reduction in income tax rates.
The prime minister had launched the amnesty scheme and reforms package in a last-ditch attempt at broadening the government’s revenue base, merely 55 days before the end of the government’s tenure.
Moody’s stated that the new scheme would alleviate fiscal pressure from the government’s low revenue generation capacity and help increase capital expenditures for the China-Pakistan Economic Corridor (CPEC).
The repatriation of liquid foreign assets will also ease the balance of payments pressure, it said, adding that broadening the tax base by including previously undeclared assets would alleviate the country’s ongoing fiscal pressures.
Pakistan’s credit profile is consistently constrained by its weak tax revenue generation, the agency noted, explaining that the government has not recorded a fiscal surplus in the past 25 years. Pakistan is facing external pressures, with higher imports largely from CPEC weighing on the current account and foreign reserves, it said further. The agency revealed that the State Bank of Pakistan had allowed the currency to depreciate by about nine per cent in total whereas the 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, it noted.
Published in Daily Times, April 13th 2018.
