A question of propriety

Since 1977, every government in Pakistan, civil and military alike, has miserably failed to tackle the issues of revenue leakages and illegal accumulation of wealth in a few hands. Every now and then schemes for whitening of black money and/or tax amnesties for evaders are announced to discourage the honest wage earners and taxpayers. Premier Nawaz Sharif on November 28, 2013 announced unprecedented concessions for tax evaders in the garb of “good economic incentives” as he did in the shape of so-called Protection of Economics Reforms Act, 1992 (XII of 1992) that resulted in enormous flight of capital from Pakistan and dollarization of economy.

On December 10, 2013, Member Tax Policy and official spokesman of Federal Board of Revenue (FBR) clarified that “the reporting of the SDPI Seminar (held on 29-11-2013) in certain newspapers stating that he criticised economic package of the Prime Minister, is absolutely incorrect”. He added that the “Package announced by PM fully incorporates the input from FBR and has the unequivocal support and ownership of the management of FBR, and that he sincerely believes that it will help kick start the industrialisation in the country”-http://www.brecorder.com/taxation/181:pakistan/1263063:clarification/?date=2013-12-11

Pakistan is a unique case where the State instead of combating corruption sponsors and patronises all kinds of undesirable practices as narrated by Premier in his package announced on November 28, 2013 and now fully supported by official spokesman of FBR-Nawaz Sharif & cronyism, Business Recorder, December 6, 2013. Since General Zia’a era, this country is a victim of reverse capital flows and capital flights due to policies of appeasement by successive governments towards the corrupt and criminals. Every year, we receive about $12-14 as “remittances” (mostly own money recycled for whitening) but outflows are as high as $30 billion, if not more-The Swiss accounts, Business Recorder, September 9, 2013.

It is an undeniable fact that every year billions of dollars are sent abroad and then parts of this dirty money, hidden in tax havens, is legitimised using schemes provided by the State. It is widely believed that out of total remittances of US $14 billion received through normal banking channels during fiscal year 2012-13, about 40% was on account of “round-tripping”. Additionally, not less than US $30 billion poured into the economy through informal channels during the same period. Many are of the view that these inflows are Pakistan’s lifeline that keep things moving and help averting economic collapse.

Pakistan has a permanent money laundering and tax amnesty scheme in the form of section 111(4) of the Income Tax Ordinance, 2001 that facilitates the whitening of dirty money and tax evaded funds. It guarantees tax exemption for money brought into Pakistan through normal banking channels. Through this section, the tax evaders get undeclared money whitened by paying just an extra 1.5% to 2% to any money exchange dealer to get remittances fixed in their names. This section has been abused cleverly by Pakistani tax dodgers to launder their untaxed money through State patronage! In presence of this section, experts are of the view that neither the existing tax laws can be enforced nor any amnesty scheme can work.

Pakistan represents a classic case study of unchecked and unabated reverse capital outflows and illegal capital flight. The Pakistani economy lost billions of dollars to crime, corruption, and tax evasion since 1991 when many money whitening schemes and Protection of Economic Reforms Act 1992 were introduced by the then government of Nawaz Sharif to legitimise untaxed, undeclared money and assets in the name of so-called liberalisation of economy (see details in our books, ‘Pakistan: From Hash to Heroin’ and ‘Pakistan: Drug-trap to Debt-trap’).

The Protection of Economic Reforms Act, 1992 gives a free hand to tax cheats and money launderers to get billions whitened. Unfortunately, however, this law has never been examined by anybody from this perspective. All public office holders who have taken advantage of this law to avoid tax should have been disqualified for open admission of cheating the State. But not a single case has been filed till today and Election Commission of Pakistan at its own has never taken cognisance of it. It confirms how the rulers in this country engineer laws for self-aggrandisement. The losers are the poor and helpless of this Land of Pure, who are burdened with exorbitant indirect taxes and yet get nothing in return. The rich and mighty enjoy all luxuries of life at the expense of taxpayers whereas majority is living under the poverty line.

In these columns we have been persistently asking for a crackdown on underground economy, money laundering and revenue leakages. We never cited any known or hidden assets of Zardari or Sharifs and other politicians, quoted by various writers, as it is the job of the concerned authorities to get authentic information and evidence. Those at the helm of affairs in the Federal Investigation Agency (FIA), Anti-Narcotics Force (ANF), National Accountability Bureau (NAB) and FBR, should be taken to task for not investigating criminal flows and bringing on record all hidden assets. They have never bothered to employ modern intelligence apparatus to detect fiscal crimes, tax evasion and laundering of dirty money and seek information from other countries under the treaties. We suggest they should read a highly informative book, ‘The Infiltrator’, by Robert Mazur who, as an undercover agent in Internal Revenue Service (IRS), US Customs and Drug Enforcement Agency (DEA) successfully led one of the biggest money-laundering prosecutions in the US history. He not only demonstrated courage and dedication as an undercover agent but also valiantly resisted bureaucratic hurdles.

Rehman Malik, at a Press conference on 28th April 2012, while alleging that Nawaz Sharif and Shahbaz Sharif were involved “in a $32 million money laundering and bank default of Rs 6 billion” went on to say, “I want to ask you only one question: from where did you get $32 million?” This amount, he claimed, was paid by the Sharifs as settlement with a bank after a court’s decision in London. In a strange and disgusting manner, the Interior Minister claimed that whatever he was presenting was his personal collection of proofs against the Sharif family. This was how, a responsible minister in Pakistan had talked about serious alleged crimes of corruption and money laundering. He was duty bound to take action against all acts of corruption and money laundering, but for him selective attack on opposition is the only priority. On the other hand, PML(N) while refuting all these allegations asked for the return of $60 million allegedly obtained by ex-President Zardari after the Swiss authority unfroze accounts on receiving a letter from the Attorney General. Now in power they are doing nothing about it. Raymond Baker, Director of Global Financial Integrity, a research and advocacy organisation in Washington, DC, and Director of the Task Force on Financial Integrity and Economic Development, an international private-public coalition of civil society groups and governments working on the issue of illicit financial flows, highlighted the alleged corruption of Zardari and Sharifs in his book “Capitalism: Achilles Heels & Dirty Money & How to Renew the Free-Market System” (http://85.17.122.144/bookreader.php/135381/Baker_-_Capitalism’s_Achilles_heel.pdf) published in 2005 [page 77-85]. Zardari and Sharif who refute charges of stashing money abroad should answer the allegations comprehensively as he cited properties and accounts.

Corruption in Pakistan is all pervasive. The ashrafiya (elite)-indomitable military-civil bureaucracy, corrupt politicians and unscrupulous businessmen-keep on singing the mantra of “patriotism” (sic) but indulge with impunity in rent-seeking, power politics, plundering of national wealth and organised crime. They consider it as their inherent right to deprive the poor of their fundamental rights. A lack of accountability and unprecedented tolerance towards corruption has made Pakistan a State controlled and run by ruthless forces representing money power. The following report is an eye-opener for all-http://www.thenews.com.pk/article-116604-Karachis-black-economy-generates-Rs830-million-every-day

— Karachi’s black economy generates a staggering Rs 830 million every day.

— At least Rs 10 million is paid in extortion on a daily basis, while kidnapping for ransom amounts to Rs 50 million.

— Every day the parking-mafia, which operates over 500 lots in the city, hooks Rs 2.4 million. There are over 55,000 hawkers operating stalls/kiosks in the city, who pay Rs 8.25 million to blackmailers every day.

— The water mafia sells approximately 272 million gallons of water illegally each day, which amounts to Rs 100 million.

— The city also houses 15,000 drug-selling and gambling dens, which make Rs 150 million per day.

— Karachi’s land-mafia illegally grabs over 30,000 acres of government land denting the national exchequer by Rs 7 billion annually and Rs 230 million daily.

— The city’s transport mafia extorts Rs 10.48 million from buses, rickshaws and taxis. Illegal payments called “Dhakka Wasooli” received from trucks, container-trucks, and oil tankers earn the mafia an additional Rs 7.5 million.

— Electricity worth Rs 10.5 million is stolen daily in the city and there are between 4,000 to 5,000 ‘kundas’ (illegal connections) in Karachi.

— Criminals associated with the health industry deprive the poor patients of Rs 3 million every day.

— Vehicle theft in the city is also at an all-time high, with an average of 40-50 motorcycles and 20-25 cars are lifted daily. This translates into Rs 20.5 million a day.

— Street criminals loot around 125-150 mobile phones, cash, jewellery and other valuables worth Rs 5.2 million daily.

— Short-term kidnapping in which the abductees are held at gunpoint and driven around the city for several hours generates over Rs 3 million. Approximately 10-15 such kidnappings are reported from city’s posh localities every day.

— The police in Karachi also receive bribes worth Rs 210 million on a daily basis, which go into the pockets of officers from top to bottom.

Unfortunately, Pakistan has become a place where rampant and institutionalised corruption has become a way of life. Money from whatever source it comes, is the catchphrase in our society: aid money, drug money, foreign money, American money in exchange for fighting war against terrorism (sic), and ‘black’ money (which can be ‘whitened’ by mere ‘remittance’ through normal banking channels or investing in stock exchanges!). What makes the situation worse is the fact that State sponsors and protects all these actions through schemes and laws as mentioned above.

One just needs to go to a licensed money exchange company, pay the premium for telegraphic transfer to one’s account, which is instantly arranged. A very simple way of money laundering and no proceedings before the tax administration [section 111(4) of the Income Tax Ordinance 2001 gives full protection to such sham transactions]. Is there any other State in the world that gives such patronage to the criminals and tax evaders? There is open proof of such money being spent everywhere: in the ostentatious lifestyle of new urban development, in the bright galore of foreign cars on the roads, in the smugglers’ markets brimming with latest foreign electronic gadgetry and in the shops crammed with foreign goods. Who says this is a poor country? The government is no doubt poor (sic) but the people are very rich-check out the number of rural people lavishly spending the good support price for their bumper wheat crop.

The chief preoccupation and addiction of this nation is money. Everybody is yearning for luxurious lives while their fellow countrymen are dying of hunger and diseases in open camps. A dangerous result of all this is that in our society all rights have become privileges and privileges have become rights. The public has a right to services like education, health and transport, but the system behaves as if it is offering a privilege. The public servant is duty-bound to serve the public, instead he behaves as if it is inconvenient to do so. Most people working for the state are no longer interested in performing their jobs but in finding ways to extract a premium from the hapless citizen. The premium or, more accurately, bribe is now an accepted practice.

Tragically, it has become a free-for-all society and laws that are designed to prevent this just fall by the wayside. The general attitude is of helpless resignation, an acceptance of the defeatist principle that if one is to survive one must become part of the game. It then becomes dangerously akin to the rule of jungle-might is right, the weak are meant to fall out and the predators meant to prey freely. The bleak side of the picture is that the persons-judges, politicians and bureaucrats-who are capable of checking this distortion, are not willing to oblige, for it would sever their power base and financial lifelines. If the system is to be saved from sinking into greater chaos and ultimate collapse, corrective actions must be taken forthwith. The starting point should be a clear recognition of the State’s role with respect to harmonious working of legislature, judiciary and administration. The State will have to vehemently devote its entire energies to enforcing laws that protect the public from cheats and racketeers rather than supporting a system which protects and encourages them.

(The writers, lawyers and Adjunct Faculty at Lahore University of Management Sciences (LUMS), are partners in law firm, Huzaima & Ikram (Taxand Pakistan)