A whopping number of documents (11.5 million) constituting 2.6 terabytes of information of the Panamanian law firm Mossack Fonseca, the world’s fourth biggest provider of offshore services, have been leaked.
These documents are sourced to an anonymous informant by the German newspaper ‘Süddeutsche Zeitung’ and shared by the International Consortium of Investigative Journalists. Journalists from over 80 countries reviewed the data for reportedly more than a year. In other words, denial would not appear to be a legitimate defence.
Mossack Fonseca has defended itself by stating that it complies with money laundering laws but cannot be blamed for failings by intermediaries defined as banks, law firms and, notably, accountants.
Prime Minister Nawaz Sharif’s family members are listed as clients. The question that arises is whether off shore accounts are legal? Yes and no. Yes for businesses that face currency restrictions and defend them from raids by criminals and no to those, who in a speech last year, David Cameron, the British prime minister, referred to as the corrupt, the criminals and the money launderers.
This charge accounts for it being made mandatory from June this year for all the UK companies to reveal their “significant” owners.
So which category does the incumbent Pakistan Prime Minister’s family belong to? Without doubt the Sharif family and its army of defenders would claim to belong to the former category and insist that their wealth in the offshore accounts was generated by engaging in business outside the country, a claim made by Hussain Nawaz in his recent interviews.
This, however, does not exempt resident Pakistanis from the legal obligation to declare such assets held abroad, in their ‘wealth statements’ that have to be mandatorily filed with their tax returns. Therefore, given the sheer flood of documents that have been leaked, the family would be well advised to come clean as further damning revelations are expected in the days and weeks to come.
It is significant to highlight Protection of Economic Reforms Act (PERA) passed by the Sharif administration in 1992:
“all citizens of Pakistan resident in Pakistan or outside Pakistan and all other persons shall be entitled to and free to bring, hold, sell, transfer and take out foreign exchange within or out of Pakistan in any form and shall not be required to make a foreign currency declaration at any stage nor shall anyone be questioned in regard to the same….and shall continue to enjoy immunity against any inquiry from the Income Tax Department or any other taxation authority as to the source of financing of the foreign currency accounts.”
In this context, for PPP Senator Salim Mandviwalla to state on an Aaj News programme, that he intends to file an amendment to PERA in parliament limiting the foreign currency that can be taken out of the country must be appreciated. However, since the PML-N has a majority in parliament and its passage would require a simple majority it is unlikely to be passed until it has the support of the ruling PML-N.
One would like to assume at this stage that Nawaz Sharif would like to plug this loophole which is one of the reasons for the continuing outflow of wealth. In addition, remittances continue to provide an extremely fertile ground to those who routinely engage in whitening black money given that home remittances remain tax exempt as they ought to be.
Instead of proactively seeking to identify and tax the rich the Finance Minister, Ishaq Dar, has begun to raise taxes on the existing small number of tax payers, the bulk of who are salaried. In the next budget the reliance on withholding taxes is set to rise to 75 percent and unfortunately the administration is misrepresenting these taxes as direct taxes, given that they are levied on consumer items and services rather than on income and therefore technically must be identified as indirect taxes.
Overburdening the existing tax paying public while the leadership banks in offshore accounts or outside the country may have a greater impact on 2018 elections than a lower energy demand supply gap; or indeed huge outlays on development that would simply fuel the deficit to unsustainable levels yet again.
Pakistani politicians must realise that the mood of the public is no longer what was prevalent in the 1990s. One has only to look at the PPP’s performance in the 2013 elections to realise that the linkage between corruption (perceived or otherwise) and electoral losses has been forged.
It is important to differentiate between the Foreign Exchange Act and the tax laws. Individual Pakistanis are allowed to send money abroad from their foreign currency accounts. They can also deposit cash dollars in the Foreign Currency Account provided they can back the source of funds.
Tax laws require declaration of both Foreign Currency Accounts as well as Rupee Accounts. Having offshore companies may be legal but is bad optics for people in public service that includes bureaucrats, politicians and judges because they have the power to make, amend, enforce and interpret laws. There is no private life of a public figure.
Source: Business Recorder