Huzaima Bukhari and Dr Ikramul Haq
Much before Bahamas Leaks and Panama Leaks, we cited in these columns many cases of unlawful capital outflows, tax avoidance and corruption by public officeholders and others. However, the National Accountability Bureau (NAB), Election Tribunal, Election Commission of Pakistan (ECP), State Bank of Pakistan (SBP), Federal Board of Revenue (FBR), Federal Investigation Agency (FIA), and provincial anti-corruption departments, as expected, chose to look the other way since rulers of the day wanted to protect tax evaders. Till today, no effort has been made by these agencies to form joint investigation teams for probing allegations levelled in these and other leaks. FBR has failed to make concerted efforts to seek information of tax evasion under various agreements of avoidance of double taxation and fiscal evasion signed by it in terms of section 107 0f the Income Tax Ordinance, 2001.
FBR in Para 5 of Circular 6 of 2012 says: “Accordingly, all field officers while examining the cases of taxpayers with income-generating sources or business connections in any of the SAARC countries must bear in mind that the need to invoke Article 5 of the SAARC-LMA to seek all legitimate tax information about their taxpayers from within any of the SAARC members – as long as the information that they are seeking is covered by Article 5 supra and has value in terms of expected additional revenues. Such an effort could be of substantial value in respect of artists, players, IT experts, consultants, local textile industry entrepreneurs branching out into regional countries (e.g. Bangladesh), and portfolio investors into Indian and other regional stock markets. It must be remembered that legally information pertaining to a period after the SAARC-LMA had come into effect in a particular state could only be requested. Thus, from now on, invoking Article 5 of the SAARC-LMA be taken as a mandatory checklist point of all audits, instead of a luxury to be resorted to only at will and option”.
The field officers have not bothered to follow instructions of FBR, which also never takes them to task or gather the necessary information and then share it with the officials. No cell has been established in FBR to probe high-profile cases where tax evasion is committed along with flight of capital. The main reason behind it is patronisation of tax evasion by the present government. There were frequents claims of broadening tax net by the Finance Minister that culminated in offering three amnesty schemes while a fourth one is in the offing. The disastrous results of last three are known to all but no official data is released so far. Yet the award for best Finance Minister is begged!
According to Zeeshan Haider, Amnesty for Tax Evader, “under the proposed scheme, a person can legalise all his undeclared assets, inside or outside Pakistan, by surrendering only five percent of them to the government in the first two months of the launch of the scheme. Those availing the scheme within three to four months of its launching would have to deposit 7.5 percent of the assets value, while those declaring their ‘undeclared’ wealth in the last two months of the scheme, would have to surrender 10 percent of the value. Those failing to avail this opportunity, as per the proposal, would be jailed for up to ten years, and would also have to pay 35 percent income tax as well as a huge penalty for concealing their wealth. The government officials have always defended such schemes on the plea that they not only help generate revenues for them but also assist in broadening the tax net of the country. However, critics say such schemes are a big injustice to the people who earn money through honest means and then honestly pay taxes on their income”.
In No More Tax Amnesty [The Nation, January 7, 2017], it is noted: “The ruling party fails to see the general climate of international financial laws. Internationally, there is a move towards greater transparency and accountability and with various conventions under the Organisation of Economic Cooperation and Development (OECD), many countries, including tax havens, will start sharing their information with other countries, making it even harder for individuals to keep undeclared wealth abroad. If this latest tax amnesty is actually offered in Pakistan, the biggest beneficiaries of this would be those who have chosen to stash money and assets outside the country, and now get tax breaks at home too. It just gives moneyed interests more choices to whiten their money, rather than forcing them to pay their dues”. In 2016, Dr Shahid Qureshi, senior analyst with BBC and editor of The London Post in one of his articles alleged that “by giving tax amnesty to the criminals and terrorist financiers Ishaq Dar and Nawaz Sharif are damaging the state of Pakistan”.
All over the world, the main issue arising from the Panama Papers is lack of moral standards for those who represent people and hold public office. They cannot and should not hide their financial matters behind laws of secrecy and privileges. In this context, it is necessary for all the elected representatives, not just the Prime Minister alone, to come forthwith and make public, sources funding their life of luxury. Ishaq Dar should stop offering any new tax amnesty and should table a law for confiscation of untaxed, benami assets.
Most of the elected members have a fleet of expensive cars (besides using official ones) and palatial bungalows. These are either not shown in their asset declarations or claimed to have been received as gifts in declarations filed before ECP. Many elected representatives have an army of servants and guards. They must tell the public who are the donors of gifts that fund their luxuries. Such donors are certainly not doing so as charity! Many members own huge agricultural lands and have investments in industrial units like sugar, textile and paper mills. Many have properties outside Pakistan. Any elected member who is beneficiary of “wealth” and “gifts” from family members or friends at home or abroad, must explain the sources and modes of these “financial favours”. This is requirement of various laws like the Representation of People Act, 1976 and the Income Tax Ordinance, 2001.
In the wake of the Panama Papers, the assets of politicians, generals, judges and high-ranking civil officers should be made public on a priority basis vis-à-vis their tax declarations. The apex court should also summon the Chairman of NAB, FBR, Director General of FIA, Governor SBP, etc, to explain the inefficiency of their organisations in countering unlawful outflows/inflows, tax evasion and corruption.
The determination of the quantum of black money, rent-seeking and tax evasion is a daunting task. It is an incontrovertible fact that Pakistan is a unique case where the State, instead of combating corruption, sponsors and patronises all kinds of undesirable practices. Pakistan is a victim of reverse capital flows and capital flights due to policies of appeasement by successive governments towards the corrupt and criminals.
The ultimate cynicism that afflicts a society is acceptance of corruption as a way of life. Unfortunately, after seven decades of independence, this is precisely where we have reached. Pakistan cannot progress unless foundations of corruption and rent-seeking are destroyed. For this it is necessary to forfeit all benami (untaxed/undeclared) assets in favour of the State. Immunities and amnesties for criminals, plunderers of the national wealth and tax evaders must be abandoned without any further delay.
The majority of the members of Parliament have declared shamelessly low incomes as evident from Tax Directories for 2013, 2014 and 2015 published by FBR. The elected members, politicians, public office holders, bureaucrats, generals and judges should be investigated by an independent commission, comprising experts and men of impeachable integrity, as to ownership of their assets (in own name, family, relatives and benami) and style of living vis-à-vis their declared incomes. This process alone will ensure true accountability in Pakistan. Once the rich and mighty are taken to task, all citizens will automatically obey the laws and pay their taxes honestly and diligently. (The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)
