Huzaima Bukhari and Dr Ikramul Haq
Pakistan is a unique country where the governments—military and civilian alike—have been frequently introducing amnesty schemes allowing whitening of dirty money. In other words, both the Legislature and Executive are keen in sponsoring and patronising criminal activities of not only tax evaders, but also in extending facilities to terrorists, drug barons, and such others to decriminalise their funds. In the presence of obnoxious laws protecting dirty money, the only hope is the Apex Court to take suo motu action under Article 184(3) of the Constitution. If it is not done, the criminals engaged in tax evasion, terrorist financing, corruption, money laundering will continue to play havoc with the State.
The question that baffles sane minds is that why do elected members of Parliament approve and/or pass such undesirable laws/schemes? For the last many decades, Pakistan is victim of terrorism, tax evasion, corruption, reverse capital flows and capital flights, all due to policies of appeasement by successive governments and laws that protect the perpetrators of these crimes.
On November 28, 2016, the Standing Committee on Finance and Revenue of the National Assembly approved yet another amnesty scheme facilitating dirty money in real estate sector, despite protest and walk-out by the Opposition. This amnesty is included in Income Tax (Amendment) Act, 2016, presented in the Parliament on November 30, 2016 as Money Bill. Possessors of dirty and untaxed money have been accommodated brazenly and shamelessly. This state-backed protection of dirty money is not only unprecedented but also the worst example of decadence!
Besides the bona fide investment in real estate in Pakistan, this sector has been the most attractive shelter for dirty money as well as generating further unprecedented untaxed profits. The decision of extending yet another amnesty for owners of dirty money by amending section 111 of the Income Tax Ordinance, 2001 giving them facility to pay just 3% of difference of valuation as per FBR’s rate and that of local authorities and no question would be asked about the source of money for purchasing property is simply despicable.
Tax Reform Commission (TRC) Pakistan in its final report, submitted to the Government in February 2016, highlighted the fact of gross undervaluation in registered purchase deeds of immovable property and the resultant massive evasion of tax. It was recommended by the TRC that the government as a first step should fix the value of properties at 75% of market values and such values should be updated every year by FBR in coordination with provincial authorities. In a study, FBR estimated Rs. 7 trillion of black money invested in real estate till June 30, 2016.
On October 18, 2016, the Chairman FBR, Nisar Muhammad Khan, informed the Senate Standing Committee on Finance that no amnesty scheme was under consideration for the real estate sector (‘Real estate sector: No amnesty scheme under study: FBR’, Business Recorder, October 19, 2016). He asserted: “We must know about the source of difference of amount between DC rates and the FBR notified rates”. The Chairman FBR revealed that Standing Committee on Finance of National Assembly wanted either one-time exemption in respect of difference between the two rates or that a fix tax should be charged. He said the tax authorities were not in agreement to suggestion of National Assembly’s Standing Committee on Finance of giving one time exemption or imposing a fix tax. While assuring that no amnesty scheme was to be announced, he added that “the FBR has no powers to introduce tax amnesty scheme and if government ever decides to do so, she would route through the Parliament”. Chairman FBR claimed that some sectors have been very hard to bring into the tax net and real estate sector under valuation was one of them. The government, he said, introduced some measures to address the issue of under valuation and sector raised objection to them.
The tax authorities, he said, had a serious and detailed negotiation with the stakeholders and notified rates of 21 cities after reaching a consensus with the stakeholders of these cities. However, Chairman of the committee and some members, Senator Fateh Muhammad Hassani, Mohsin Aziz and others stated that they had forewarned the tax authorities before the measures were introduced about its repercussions. “You did not listen to the committee and introduce a policy in the budget which did not work”, Committee Chairman said and added, “all the registries have been struck in the registrar office and no registry property documentation was taking place”. He said power of attorney had become now a way of business in the real estate and asked the FBR “to let the committee know about any development on the issue”.
Senator Mohsin Aziz said the government had taken these measures to favour few peoples in real estate sector as was done in the 1992 through the Economic Reforms Act. The Chairman of the Committee termed the Economic Reforms Act of 1992 as ‘economic destruction Act’ primarily because it was used to transfer foreign exchange from the country to abroad through resident Pakistanis. Saleem Mandviwalla said that “1992 Act approved by Sartaj Aziz gave blanket approval to Pakistani residents to transfer as much as foreign exchange they want through foreign currency accounts. An official of State Bank of Pakistan said that Act was amended in 1999. The committee decided to defer the law proposed by the Chairman to amend the Economic Reform Act for taking a briefing from him.
Haroon Akhtar Khan, Special Assistant to the Prime Minister on Revenue, on November 17, 2016 made a public statement in Karachi that “the government is against any amnesty” and “after passage of the Finance Bill 2016 property would be brought into the tax net and prices of property would be evaluated by third-party under notification of State Bank of Pakistan and real estate will no longer be a safe haven for black money”.
The amnesty for real estate sector, or for that matter anybody, is highly detestable as it discriminates against honest taxpayers. Property speculators and rich property mafia after this amnesty will rule the property market and exploit the common citizens. It is a lamentable situation where the entire State apparatus is subservient to those who blatantly manage to hide their incomes and wealth. It is an ugly joke with those who are paying their taxes honestly at much higher rates than those offered to tax evaders in amnesty. The ugliest face of untaxed money in Pakistan emerges in the corridors of power, political as well as administrative. Since rulers do not pay taxes and prefer to keep business empires abroad how can they be sincere in enforcing tax laws? Parliament also passes such obnoxious laws as most of the members have laughable tax declarations.
The first and foremost objection to any tax amnesty scheme is that it betrays the honest taxpayer and the nation as a whole. The message sent out by repeated tax amnesty schemes is that taxes are regularly paid by only the honest taxpayers, whereas the “wise” wait to avail benefits of such undesirable schemes.
The timeless amnesty for real estate would permanently destroy and distort the tax structure of Pakistan for years to come and would be a black spot on Pakistan’s repute in the international community which is going after black money and curbing its legitimization in any form with a heavy hand. The sector specific amnesty scheme would also run counter to the National Action Plan to curb terrorism as there is no denying the fact that some black/untaxed money gets channelized for anti-state activities.
(To be continued) (The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).)
