FATF and Pakistan’s tax amnesty scheme

• Only in Pakistan

Any tax amnesty scheme must be in line with global standards on anti-money laundering. Decisions cannot be taken that have gray areas and prima facie in violation with standards set down. Nations are inter-linked at many levels. They do not operate in isolation. ‘The FATF is the global standard setting body for anti-money laundering and combating the financing of terrorism.’

It is an unfortunate trait of Pakistan’s policies that are mostly reactive, rather than well thought out and in line with national interests. As per a report by Pakistan Today, “Sources in the tax regulator (FBR) said the PM had announced the amnesty package in a hurry without undertaking a proper plan. The FBR believed the real estate was a provincial domain and the federal government didn’t have the right to purchase a property. Because of this constitutional problem, the tax amnesty could be challenged in a court of law, they said.” (April 7, 2018)

Besides the legal complications involved, Pakistan needs to submit an action plan with the FATF to not to be placed on the list of terror financing nations.

Prime Minister Shahid Abbasi offered wealthy Pakistanis a three month time period to declare their so far hidden assets whether locally or abroad at a punitive rate of two to five per cent to whiten the wealth.

Pakistan policy makers’ perception that there is no violation of global standards is way off target. One cannot but be stunned at the complete lack of understanding by them about approach by the international community

This scheme strongly under values the action plan Pakistan needs to submit to FATF in coming weeks and is bound to boomerang. Pakistan can graduate to the gray list with relative ease. Here is why: Finances from anti-money laundering, drug related funds and terror financing cannot be whitened. Pakistan lacks a mechanism to distinguish and differentiate between different sources of incomes. How can the different sources be separated from other earnings?

There is a perception about Pakistan. The perception that has been developed that Pakistan is involved in terror financing. This perception may well be largely incorrect but schemes like the tax amnesty will reinforce this perception.

FATF has written a letter to the Pakistan’s government raising serious concerns about the scheme stating that a clearance from FATF for such a step has not been sought.

Justifying of the scheme at the international level will be extremely difficult. Pakistan’s poor diplomacy and failure in making her narrative acceptable to a global market in spite of her tremendous sacrifices in WoT and erosion of her social fabric owing to influx of Afghan refugees and spread of militancy within the borders has been one of the reasons for the soup she finds herself in. The civil mechanisms of putting NAP in place, too, were not taken seriously.

Pakistan had two options on which to build her strategy on, including a) making a strong statement that the country has banned stated organisations as well as individuals associated with them, arrested some, placing them under trial while seizing their assets and, b) stating categorically that these outfits are charity organisations working for welfare of the people and not even remotely associated with terrorist activities, presenting facts and data to the effect. There was no third option.

Acting Secretary of State Alice Wells stated as per Reuters report that the desire to place Pakistan on the list was only partly due to its failure to take stringent actions against the head of JuD Hafiz Saeed, which Washington feels is a cover up in garb of charity for Lashkar-e-Taiba, a military group. Also as per Reuters, the international community continues to have concerns about deficiencies in Pakistan’s anti-money laundering and counter-terrorism financing system.

Being placed on a terror funding watch list will have serious repercussions of its own. Such an act will cut through the few banking links Pakistan has in the world. This is not just about “arranging funds from friend states” but about the image of Pakistan worldwide and the dignity of every Pakistani. It was the first time that the country was nominated by four nations to be placed on the gray list.

At the domestic from this scheme will offer as perception goes; protection to people from election and fiscal laws declaring their stashed and hidden goodies. Though this is not the first taxation scheme, it is the first time that ‘authorities plan to include public officeholders among the beneficiaries.’ (April 9, 2017)

Dr Ikramul Haq, Advocate Supreme Court of Pakistan, is based in Pakistan, where he is the chief partner of Huzaima & Ikram, Pakistan’s leading law firm specialising in taxation, constitution and corporate laws. He argues, “In established democracies, avoiding/evading tax and/or availing tax amnesty disentitles a person to take part in politics, what to speak of representing people. Judgment in the case of Imran Khan holds otherwise. It is good news for tax-lax public representatives and future candidates as a new amnesty for domestic/foreign assets/incomes is publicly announced by Premier Shahid Khaqan Abbasi, prepared by adviser to the prime minister. They may avail it to avoid disqualification in 2018 elections. It is reported that in the proposed scheme, ‘confidentiality’ will also be ensured. In other words, the voters will not even know who availed it. This can happen only in Pakistan — it is open mockery of constitution and the rule of law.”

Pakistan policy makers’ perception that there is no violation of global standards is way off target. One cannot but be stunned at the complete lack of understanding by them about approach by the international community on critical issues. Dr Miftah Ismael’s stance therefore that “There is nothing to worry about, as the legal team has assured me that the proposed package is in compliance with the global standards on anti-money laundering,” leaves one at a loss for words!