Member Inland Revenue, Federal Board of Revenue, Rehmatullah Khan Wazir, informed the members of the Senate Standing Committee on Finance that FBR is not legally empowered to open cases of resident filers who made offshore investments up to five years and non-filers for six years.
Prior to the amendment in the 2010 Finance Bill the FBR could open cases of resident Pakistanis for 10 years.
Asked by the committee members about the capacity as opposed to the legality of probing data beyond 10 years, Wazir revealed that the FBR stands by its electronic data from 2004-05 onwards and claimed that manual data prior to 2000 is available, however, “it is very difficult to maintain manual data”.
Business Recorder quoting senior FBR officials recently reported, the Board stood by data entered by its staff from 2007 onwards but that between 2000 and 2007 data input was outsourced and the Board officials refused to take responsibility for data integrity for these years – a claim that is inexplicable and one would hope that the company to which this contract was given has not been paid.
Be that as it may, a Supreme Court verdict specifies that there can be no enactment of a law with retrospective effect or in other words, a law passed today allowing the FBR to probe the filers and non-filers with offshore companies for more than the time allowed by current legislation would have no validity.
Wazir also stated that as Pakistan does not have a treaty with Panama the Board cannot seek any information. It is critical to re-emphasise the fact that all offshore accounts held by resident Pakistanis are not necessarily a reflection of corruption or money laundering or counter-terrorism financing.
In several instances, especially during a time when sanctions are imposed on any country, as they were in the immediate aftermath of the nuclear tests undertaken by Pakistan, an offshore company is the only way to set up a joint venture.
It is therefore proposed that in Pakistan’s case if a law is enacted making repatriation of the entire amount of assets in offshore accounts mandatory then legal complications may arise which in time would render the entire exercise meaningless.
A better option would be to levy, say a 5 percent tax, on the purchase value of the assets in offshore companies that would then incentivize the resident Pakistanis to declare these companies.
The International Monetary Fund (IMF) recently conducted an investigation into Panama’s regulations and found that the country’s anti-money laundering law does not cover lawyers, accountants, insurance companies, notaries, real estate agents or dealers of precious metals and stones and noted that “because Panama is an important international financial and corporate services centre…this lack of coverage is a key systemic deficiency.”
The Fund is organising a conference on “Law and Financial Stability,” May 16 to 18, and according to the Fund’s General Counsel “while the Panama Papers will not as such be discussed, they do highlight the importance of international initiatives to increase transparency and introduce measures to prevent the misuse of legal entities and arrangements for illicit purposes” and added that “we need to go beyond ‘mere financial regulation’ and look at what more can, and should, be done to improve incentives and strengthen ethical behaviour by financial market participants and public authorities.”
One would hope that Pakistan is represented at this forum by the Finance Minister himself to spread the perception that the PML-N government is serious about ending this leakage from the system.
In this context, the 10th IMF review on the ongoing 6.64 billion dollar Extended Fund Facility noted that while parliament recently amended the Anti-Money Laundering/Counter-Terrorism Financing Act (AML/CFT) to subject the proceeds of some tax crimes to AML legislation yet ‘the authorities plan to further expand the coverage of tax crimes under the AML act including income tax-related crimes.”
It is unfortunate that the Senate Standing Committee on Finance chaired by Salim Mandviwala took out income tax-related crimes from the AML Act.
And finally, legal or not based on our existing laws it is the general consensus that those holding public office should be held to higher moral standards than those engaged in productive activities.