Debate about the retrieval of stolen, plundered, untaxed assets stashed abroad by Pakistanis has elicited heated arguments and bitter controversies. It gained more attention after the newly-formed Cabinet, in its maiden meeting chaired by the Premier, Imran Ahmed Khan Niazi, ordered a task force to look into the matter. The controversies relate to figures quoted by official and unofficial quarters and application of various laws, procedures and methods for retrieving funds. The Supreme Court also took suo motu action on February 1, 2018 on assets stashed abroad, a matter that is still pending.
The latest estimate of hidden assets abroad is of Rs. 43 trillion, according to a report by Zahid Gishkori. He has quoted reports submitted to the SC by the Federal Investigation Agency (FIA), State Bank of Pakistan (SBP), the Federal Board of Revenue (FBR), the Security& Exchange Commission of Pakistan (SECP) and other institutions. For many, this figure is outlandishly exaggerated. They compare it with the recorded GDP of around $286.7 billion. They do not take into account the monstrous size of parallel economy that generates outflows of nearly $10-12 billion annually. SBP told the SC that during the fiscal year 2017-18 outward remittances from foreign accounts were $15.25 billion. On average $8 billion were sent abroad annually from foreign currency accounts alone — the total amount since the introduction of the Protection of Economic Reforms Act, 1992 comes to $200 billion — it is believed that about the same amount was sent abroad through non-banking channels.
Coming to figure of $200 billion in Swiss accounts, this was officially communicated to the Cabinet through a summary signed on August 26, 2013 by Tariq Bajwa, the then chairman FBR and now Governor SBP. It was contested by many, including some members of the Parliament, but the then finance minister, Ishaq Dar stood by it! However many have claimed that this figure was not based on any reliable sources. Furthermore the the myth of $200 billion still persists — as the latest report by Zahid Gishkori reiterates it!
The most viable method for retrieving untaxed funds is to seek actionable information using the OECD Multilateral Convention signed by Pakistan in 2016, enabling the FBR to officially receive information about off shore accounts and assets of Pakistanis with effect from September 1, 2018
According to the official annual data released on June 28, 2018 by the Swiss National Bank (SNB), the total funds held by all foreign clients rose about three percent to CHF1.46 trillion in 2017. It is now for the task force to ascertain the correct figure. They should summon Tariq Bajwa to review the data, as well as to explain why on the directions of Ishaq Dar, he sabotaged the renegotiated tax treaty with Switzerland.
The officer who renegotiated the treaty with Switzerland in 2014 was later issued a show-cause notice to explain why he was authorized to ink a new treaty? He provided evidence in form of approvals from both the 2014 cabinet and prime Minister. Moreover in his reply, he exposed the ulterior motives behind the renegotiation; to facilitate tax evaders in shifting their funds from Swiss accounts to further destinations. The officer was and is ready to defend his actions at any cost, at any forum. The 2018 task force headed by Shahzad Akbar should summon him for the whole story once again.
In a hearing before the Senate Standing Committee on Finance on January 9, 2018, the spokesman of FBR said that “information about old cases cannot be obtained” under the revised convention “but we will try our level best to get past information, specifically bank account details of Pakistani holdings in Swiss banks”. The FBR’s spokesman told the Senate: “We have requested the Swiss government to include the names of Pakistanis in the list of countries for exchange of information, which has been endorsed by the Swiss Parliament.” He however did not inform the Senate Committee that Switzerland had yet not ratified the revised treaty inked on March 21, 2017 which resulted in the delay of exchange of information. The task force must question those officers from 2014 who played a part in frustrating the revised treaty, and neglected the ratification of the latest treaty by Switzerland. Their criminal culpability causing huge revenue losses should not go unpunished.
The expert selected by the new government, who has been working with National Accountability Bureau, has no idea about retrieving funds from abroad under bilateral or multilateral tax treaties signed by Pakistan.
He cannot think beyond the Mutual Legal Assistance (MLA) or the Stolen Asset Recovery (STAR) initiative. The most viable method for retrieving untaxed funds is to seek actionable information using the OECD Multilateral Convention (MLI) signed by Pakistan on September 14, 2016, enabling the FBR to officially receive information about offshore accounts and assets of Pakistanis with effect from September 1, 2018. We can also utilise the Swiss Tax Administrative Assistance Act (TAAC) of 2012 that facilitates all countries in extracting information about tax dodgers. The EU member countries, United States and many other countries recovered billions through ‘taxation agreements’ to retrieve the past funds siphoned off — an action that also checkmated any such future losses. Debates and actions for the retrieval of untaxed assets from this perspective are missing in our discourse.
Instead of following the above path, the previous Pakistani government resorted to amnesties even after getting actionable information from the UK and elsewhere. Only 5,363 persons availed the Foreign Assets (Declaration and Repatriation) Act, 2018 disclosing foreign assets of Rs 1,009 billion with tax payment of $375.5 million. As in Indonesia and elsewhere, we have failed to recoup the actual taxes evaded through voluntary disclosure schemes.
Through tax agreements, The US secured over $11 billion in backdated taxes and fines from Swiss bank clients and obtained documented evidence to penalise lawyers and other facilitators. We lost a chance for similar recoveries in 2014 when the tax treaty was renegotiated with Switzerland. Since 2014, huge funds have been transferred from Switzerland to many offshore centres.
The way forward for the new task force is to utilise OECD’s ‘Multilateral Instrument’ for retrieving evaded taxes vis-à-vis assets stashed abroad. In order to retrieve money by public office holders, procedure under United Nations Convention Against Corruption (UNCAC) can be adopted.
The writer is Advocate Supreme Court and Adjunct Faculty at Lahore University of Management Sciences (LUMS). He can be reached at [email protected]; Twitter: @drikramulhaq
Published in Daily Times, August 26th 2018.