WEB DESK: The names of another 259 Pakistanis have been released with offshore accounts, this time in the Bahamas, leading to their denigration by the media and the general public.
This is extremely unfortunate because our laws, legislated by parliament, allow foreign currency accounts by private citizens to be held domestically unlike other countries including the United States and the United Kingdom where residents are not allowed to keep foreign currency accounts. Until December 1999, these foreign currency accounts enjoyed immunity from any questions and tax on transactions in these accounts.
Looking at the history of legislations pertaining to the holding of foreign currency accounts and remitting unlimited amounts to foreign countries to offshore or onshore accounts it is necessary to recall that it all began in 1985 when the man regarded as the guru of Pakistani economics, Dr Mehbubul Haq, credited with the formulation of the Human Development Index in 1990, allowed the issuance of foreign currency bearer certificates. These certificates allowed members of the public to remit unlimited amount of foreign currency outside the country legally.
On 18th August 1992, the government of Nawaz Sharif passed the Protection of Economic Reforms Act that superseded all past laws and allowed: “Freedom to bring, hold, sell and take out foreign currency. All citizens of Pakistan, resident in Pakistan or outside Pakistan and all other persons shall be entitled 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. Immunities to foreign currency accounts – (1) All citizens of Pakistan resident in Pakistan or outside Pakistan who hold foreign currency accounts in Pakistan, and all other persons who hold such accounts, 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.
The State Bank of Pakistan or other banks shall not impose any restrictions on deposits in and withdrawals from the foreign currency accounts and restrictions if any shall stand withdrawn forthwith.”
The Musharraf government removed the immunity allowed under the 1992 Act with regard to tax on income earned in these accounts questioning of transactions in these accounts. This amendment also provided that “immunity shall not be available to citizens of Pakistan residing in Pakistan and to firms, companies and other bodies registered or incorporated in Pakistan in respect of any new foreign currency account opened or deposits created on or after the 16th day of December, 1999 or to any incremental deposits thereafter in an existing foreign currency account”. However, account balances prior to the 16th December 1999 were not to be taxed nor their source probed by the Federal Board of Revenue (FBR). This law remains on the statute books and there has been no further amendment since.
The current hype about offshore accounts began when accounts of party leaders and senior politicians came to light. Two elements need to be highlighted in this regard. First and foremost, the linkage between the almost exponential rise in the wealth of several politicians subsequent to being elected to hold public office is too well documented in this country not to raise eyebrows when their names are included in the list of hacked offshore accountholders. And secondly, politicians and those engaged in public service such as bureaucrats and judges, must be held to a much higher level of accountability than anyone who is not in public service.
Be that as it may, it is necessary to first identify if anyone has broken the law of the land, and one would assume that given existing legislation that allows for remitting unlimited amount of money abroad, a breach, if any, would be difficult to find that would stand the legal test.
This does not imply that there is no need for a change in the laws and sadly even five months after the Panama Papers were released, there appears to be no move towards changing our laws though the Federal Finance Minister did mention prior to the budget speech in early June this year that work on this matter has begun. One would hope that the National Assembly members begin to debate the need for a change in laws which they need reminding would not, as per the Supreme Court verdict, be applicable retroactively.
Source: Business Recorder