LONDON (April 19): 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 the 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, an 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.”

Pakistan could collect about US$3.5 billion ($4.9 billion) in tax revenue, equivalent to 1% of nominal gross domestic product, if 30% of the undeclared foreign assets are disclosed and an average 8.5% tax is levied, Exotix said, citing Argentina’s recent success.

Argentina raked in US$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 US$500 billion in funds believed to be stashed abroad.

Hidden Assets

Pakistanis hold US$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 US$80 billion in property and bank deposits, US$20 billion in local stocks held in foreign accounts -- about a fifth of the bourse’s market value -- and US$50 billion in assets such as manufacturing concerns, according Zaidi.

About 1% of Pakistan’s 200 million people pay taxes, and previous amnesty programs have failed to significantly widen the base. The country has one of the lowest tax-to-GDP ratios in South Asia despite reforms introduced as part of International Monetary Fund’s US$6.6 billion loan program that ended in September, such as reducing breaks and cutting evasion.

Less than 0.3% of the nation’s 3 million goods traders participated in the tax amnesty program launched in April last year, well below the 17% forecast by the government when it began in January. It generated only 750 million rupees ($10 million) in back taxes after four deadline extensions.