Tax Cheats Get Free Pass If They Invest in Pakistan Housing

The Pakistan economy shrank for the first time in seven decades during the last financial year. One plan the Pakistan government has laid out to boost the economy is to forgive tax evaders if they invest in construction projects like Prime Minister Imran Khan’s flagship Naya Pakistan Housing Program.

In a country where only 1% of the population files tax returns, illicit cash – also called black money – is abundant. Frequently used in small scale development, Pakistan officials are hopeful this opportunity will help fund the economy during this downturn.

Zaigham Rizvi, a member of the Naya Pakistan Housing Program taskforce, explains that “there is all this money with developers who have been doing tax evasion and small scale projects. I support the decision to bring funds from the dark economy into the tangible economy”.

These actions will generate taxable revenue from construction, transferring illicit cash into legal funds.

Pakistan’s finance ministry reported its tax income at 8% of the total GDP in the last fiscal year, the lowest figure in 20 years. It’s estimated that nearly 56% of Pakistan’s $278 billion dollar economy is comprised of illegal wealth.

This isn’t the first time Pakistan has attempted to generate money by forgiving tax cheaters. Four previous governments in the country have laid out similar programs, but none of them have been successful.

As the economic crisis in Pakistan worsens, there is a renewed sense of urgency and necessity for this program to work. Since the coronavirus pandemic, revenue collections have slowed, the government has cut the development budget and lacks the ability to raise money, resulting in the taking of bailout funds and an emergency loan from the International Monetary Fund (IMF).

This specific amnesty program is the first involving the real estate sector and is aimed at creating cash and expanding gross domestic product, as state funds are being directed to treat victims of COVID-19 and locust attacks.

According to the former chairman of the Association of Builders and Developers of Pakistan, Arif Yousaf Jeewa, there is an immediate demand for 15 million homes in the country and under Khan’s Naya Pakistan Housing Program, the government is aiming to build one million homes each year.

In order for tax evaders to benefit from this amnesty opportunity, they must register with tax authorities beginning this week. Though the IMF typically does not support tax amnesty, the world understands that these are unprecedented and challenging times.

Currently, Pakistan’s banks have extended home loans to about 100,000 customers, but the program won’t truly gain speed until incentives like cheap mortgages and tax savings are introduced. Given the economic climate Pakistan is facing, people prioritize purchasing necessities, not homes. Shifting spending patterns to increase activity in the real estate sector will take a great deal of incentive. So while tax evaders can be assured of amnesty, it is still unclear if the program’s reliance on these sources of illegal cash will be enough to guarantee its success.