Pakistan’s tax amnesty for equities: an idea worth studying

In recent times, as emerging country equity markets have tanked, there has been increasing attention (from the blogosphere to mainstream media) paid to the good health of Pakistan's Karachi Stock Exchange and its gaining of more than 30% over the last three months.

In March, the Pakistan government promulgated an ordinance under which investors who buy stocks from April 1, 2013 to March 31, 2014 will not have to declare the source of the funds provided they hold the stock for more than 120 days.

The ordinance also instituted a new securities transaction tax of 0.01%. The avowed goal is to turn black money into white and to increase the market size rapidly in order to channel this money into productive investments.

The idea is to let black money into the system and then tax the returns for further investments instead of letting it stay underground.

However, such past attempts in India tied up the amnesty with paying back taxes. In contrast, this scheme recognises that the final outcome will be better if black money can be directly deployed as investment.

In India, a vast amount of such money is now mostly bouncing around in inflated real estate, gold and other such useless channels, or quietly leaking out of the country besides being readied for financing upcoming elections.

Meanwhile, the high and mighty of our government are touring the world with a begging bowl, looking for any kind of hot money that is willing to show up on our shores.

Perhaps it's time to take a leaf out of Pakistan's book.

 

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