Tuesday, June 24, 2008

From The Department Of "Dream On, Dream Until Your Dreams Come True"

Prime Minister Gillani, ever the optimist, wants tax evaders to step forward, pretty please (with cherry on top).
ISLAMABAD, June 23: Prime Minister Yousuf Raza Gilani will launch a massive scheme to document black economy by appealing to the nation for voluntarily declaring untaxed assets.

The move, likely to come at the concluding budget session of the National Assembly, is aimed at documenting the black economy and will be part of an investment tax scheme that allows taxpayers to disclose their undeclared businesses, capital and assets by paying just two per cent of their market value.
Got it.


changinguppakistan said...

Rightttt...because asking people to come forward "voluntarily" before worked SO well.

nikhil said...

I think you're misunderstanding gillani's idea / not giving it enough
credit - india did it a few years ago and it worked really well.

It was called VDIS or voluntary disclosure of income scheme. If you
re-read that paragraph, you basically have to only pay 2% to convert all
your money from black to white - a lot of people took advantage of it
when it was done in india.

Ahsan said...

My point would be: what's in it for the black marketers? Why pay that 2%? What do they gain?

Anonymous said...

then all their black money is white money, and they don't need to hide it in bags of cash or whatever the hell they do with it (buying expensive jewelery, i think, is a popular method of storing the money). they can legally put it in their bank accounts or invest it, etc.

Ahsan said...


That depends on what we think are the reasons for the money being black, doesn't it? Ok, let's imagine there are two scenarios. Obviously this is a gross simplification, but I think it's useful to think in these terms:

Scenario 1: People want to keep their money black because of the sources of that money (crime etc).

Scenario 2: People want to keep their money black because white money-making is less efficient.

As I understand it, Pakistan shares both scenarios. For instance, it is well understood that to be an "industrialist" means you have to grease a few hands here and there. You just have to; it makes things easier. Now technically, you could convert that into white money and then not have to "worry about it" but I would argue that with various red-tape-type issues, it's just better to be part of the underground economy.

And you're forgetting foreign bank accounts. Most of these big shots aren't worried about not having places to invest or save their money; they can easily do so abroad.

I take your larger and more general point about efficiency gains but I'm wondering whether those efficiency gains are enough to make up for the loss in independence from the state.

AKS said...

@ Ahsan

You make a really interesting point about the efficiency of black money. I asked the firm's accountant to give her take on black money.

She feels that it is almost a necessity for big business to operate under the radar and not declare all their earnings. Businesses cannot afford to operate legitimately. After you’ve paid off the police, the bureaucracy, the politicians, generated your own power, bought your own water, hired additional security, etc. there’s no way that you can pay 30-40% in taxes.

I pointed it out to her that if people started paying all their taxes the police and bureaucracy would be well paid and you won’t have to pay them off, nor would you have to spend extra money on power generation etc. as the government could provide you with that. There will of course be an interim period that you will need to cover. Here the Indian model, as mentioned by Nikhil, could come in handy.

She doesn’t buy this and agrees with your point about the efficiency of black money; she feels that unless and until there are certain incentives to move to white money and certain repercussions on dealing in black money, nobody will want to declare their earnings.

First of all money laundering has to be made much more difficult. At the moment all you have to do is go to someone like K & K give them Rs. 1 Billion and ask them to transfer the amount into your Dubai / Jersey/ etc. account, which is opened under a pseudonym. You then borrow the money from yourself and show it is as a liability – this not only makes the money clean, it also saves you from paying any taxes.

Secondly, the government has to ensure that a) it’s worth paying those taxes (better infrastructure, end to bribing) and b) make it safer for you to declare your income (personal security, as well as protection from bribery, bhatas (pay-offs to mafias / gangs / political parties), etc.)