Huzaima Bukhari & Dr. Ikramul Haq
Pakistan is a unique country where the governments—military and civilian alike—have been frequently introducing amnesty schemes allowing whitening of untaxed/undeclared assets. Historically, both the Legislature and Executive have always shown keenness in appeasing tax evaders through frequent and generous amnesties and obnoxious laws like section 5 read with section 9 of Protection of Economic Reforms Act, 1992, sections 111(4) and 236W of the Income Tax Ordinance, 2001—just to mention a few. It is a fact that terrorists, kidnappers, extortionists, arm dealers, drug barons and other criminals have also exploited these instruments to decriminalize their assets/funds held benami.
Pakistan aptly fits in the concept of a “soft state”—famously articulated by the Nobel Laureate, Swedish sociologist Gunnar Myrdal in his 1968 three-volume work, Asian Drama: An Inquiry into the Poverty of Nations. It is a broad based assessment of the degree to which the state, and its machinery, is equipped to deal with its responsibilities of governance. The more soft a state is, the greater the likelihood that there is an unholy nexus between the law maker, the law keeper, and the law breaker. Pakistan is a classic case of this unholy nexus where since 1958 numerous tax amnesties were announced but failed to achieve desired results.
Before coming to power, top leadership of Pakistan Tehreek-i-Insaf (PTI) was calling tax amnesties as “immoral”, “undesirable”, “unlawful” and a “slap on the face of honest taxpayers”. After coming into power, the PTI took many U-turns and one was offering asset whitening scheme, drafted proudly by Shabbar Zaidi, resulting into tax losses of billions of rupees. The Government of PTI notified its first asset/income/expenditure whitening scheme—Assets Declaration Ordinance, 2019 through a Presidential Ordinance on May 14, 2019. The scheme gave generous incentives to those who had not been paying their taxes honestly, concealing and/or understating assets/incomes/sales/expenses and cheating the State.
Earlier, two amnesties by PML(N) of 2018 through 82,889 declarations fetched only Rs. 124 billion (domestic Rs. 77 billion and foreign Rs. 47 billion), though the then Adviser to Prime Minister on Revenue, Haroon Akhtar, claimed that collection would not be less than US$ 5 billion for foreign assets alone.
Many schemes were announced prior to that of 2018. The first scheme in 1958 fetched Rs1.12 billion, followed by Rs, 920 million in 1968, Rs1.5 billion in 1976, Rs. 10billion in 2000 and Rs. 3.16 billion in 2008. Such other schemes were also offered in 1985, 1991, 1998, 2012 and 2016, but FBR never disclosed either the amount of recovery or the names of beneficiaries.
The Federal Board of Revenue (FBR) on November 7, 2019 confessed before the Standing Committee on Finance & Taxation of National Assembly that governments of PTI and the Pakistan Muslim League-Nawaz (PML-N) in their amnesty schemes of 2018 and 2019, respectively, extended benefit of Rs. 61.4 billion to 191 billionaires who were caught owning undeclared offshore assets. While the FBR did not disclose the names of the beneficiaries (as both the governments of PTI and PML-N provided legal cover to keep names secret of the beneficiaries), it was admitted by FBR that definite information was available against them under Automatic Exchange of Information (AEOI) initiative of the Organisation for Economic Cooperation and Development (OECD).
As many as 135 persons, named in the OECD database, availed the 2018 tax amnesty scheme of the PML-N and declared Rs. 62.4 billion in assets. They paid only Rs. 2.9 billion. Whereas, their actual liabilities without the tax amnesty could have been Rs. 43.7 billion, getting a relief of Rs. 40.8 billion from the last government. About 56 people, whose data was shared by the OECD, availed the PTI’s tax amnesty scheme and declared Rs. 31.8 billion worth of assets. They paid only Rs. 1.7 billion and got a relief of Rs. 20.6 billion. Of the remaining cases, Muhammad Ashfaq told the Standing Committee that the FBR assessed 115 cases, raised demand of Rs. 4 billion and recovered Rs1 billion. The total tax collection in 325 cases against $ 5.5 billion worth of foreign assets caught by the OECD web was only Rs. 5.6 billion or 0.64% of the traced assets, he added.
Mohammad Ashfaq, Director General of Directorate of International Taxes of the FBR, disclosed that among the beneficiaries were a few politicians but did not qualify in the definition of “office holders” as provided in money whitening schemes!! So corruption in their case was legalized after a lapse of 10 years under money whitening schemes though the National Accountability Bureau Ordinance, 1999 provides otherwise.
The PTI Government earlier had been proudly taking credit that it received information of around 152,000 bank accounts owned by 57,450 Pakistani nationals, having $7.5 billion in bank deposits. Bulk of this information was received much before PTI came into power. Premier Imran Khan, before giving amnesty on the insistence of many, especially Shabbar Zaidi, Chairman FBR, time and again expressed determination to bring the looted and untaxed money back. Later, he conceded before the forces of the loot and plunder.
The tall claims of Imran Khan, especially of reopening the cases of beneficiaries of asset whitening scheme of PML(N) were exposed by Mohammad Ashfaq who told the House Committee of National Assembly that out of 191 persons who availed the 2018 and 2019 asset whitening schemes, tax received by FBR was only Rs. 4.6 billion against declared assets of Rs. 94.2 billion. Thus these 191 people paid on average 4.9% of the value of assets in taxes!! It was conceded by Chairman FBR that they could have recovered 70% [As per provisions of Income Tax Ordinance 2001 on a concealed asset, there is a maximum income tax of 35% along with 100% penalty, bringing the total tax liability to 70%] of the assets. Tragically, the governments of PTI and PML(N) settled at just 2-4%, remarked Asad Umar, former Finance Minister of the PTI and Chairman of the Standing Committee. He added: “This tells why all political parties love to give tax amnesty schemes and also shows the elite capture of Pakistan’s economy and politics”.
The members of the Standing Committee of National Assembly were of the view that the beneficiaries of the schemes illegally took funds abroad. However, Shabbar Zaidi defended them claiming that “$7.5 billion went out through legal channels under the Foreign Currency Accounts Ordinance of 2001 that allows dollar buying from the market and their remittance abroad through bank accounts”. This contention of Shabbar Zaidi was contested by Asad Umar who said: “No individual can buy assets abroad without obtaining permission of SBP of ECC, as the case may be” and added: “I am not talking about your former clients of AF Ferguson, whom you had facilitated for placement of funds abroad with the help of legal lacunas”.
Asad Umar claimed that the stance of State Bank of Pakistan on remitting money abroad without seeking permission was different from that of the FBR historically. He was referring to a statement given by Irfan Ali, Director Banking of the State Bank of Pakistan before the Senate’s Standing Committee on Finance and Revenue November 24, 2015 that the central Bank neither gave any permission nor initiated a case for approval of the Economic Coordination Committee (ECC) to a billionaire for remitting $75 million for the purchase of Saint James’s Hotel in London. Asad Umar once again emphasised that there was a need to shut this door by ending ambiguity.
By yielding to demand of announcing asset-whitening scheme, Prime Minister Imran Khan conveniently forgot his extraordinary speech at ‘High-Level Dialogue on Financing for Development’ at the United Nations in New York on September 26, 2019. There he highlighted the issue of assets stashed in various tax havens by loot and plunder or through tax evasion. He said: “While it is true that illicit financial flows adversely affect wealthy countries, such movement of ill-gotten money is devastating the developing countries across the world”. Imran Khan’s speech was highly appreciated at home and abroad proving his stature as a global leader. He very aptly observed: “I do not think people fully realise the impact it (illicit financial flows) is having in causing poverty, death and destruction in human development in the developing world”—this received a huge round of applause from the audience.
Premier Imran Khan said that “in the last decade Pakistan had a corrupt leadership which took the national debt accumulated over 60 years, up by four times in the last 10 years and most of the money was made out of corruption and sent outside”. In his speech, Imran Khan claimed that after coming into power his government was trying its best to retrieve that money. He lamented that even after locating properties made from illegal money by Pakistanis abroad, “we face a number of legal lacunas and difficulties in trying to bring that money back”.
Mohammad Ashfaq’s and Shabbar Zaidi’s briefing of November 7, 2019 before the Standing Committee of National Assembly clearly establishes that Imran Khan acted diametrically opposite to what he pleaded in respect of bringing looted and untaxed money stashed abroad. This was the worst one could expect from him! He has yet not realized how his advisors let him down by foregoing 70% tax on untaxed assets for which definite information was available through multilateral treaty signed by Pakistan. How could amnesty be given when the department possessed actionable information? In only 56 cases where data was shared by the OECD, due to PTI’s tax amnesty, national exchequer suffered loss of Rs. 20.6 billion. The nation will never forgive him for this lapse which also belies all his claims of bringing tax evaders and looters of national wealth to task. Actions speak louder than words!
The writers, lawyers and authors, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).