After the furor surrounding the Panama leaks, the government claimed to take action against tax evaders and against the practice of money laundering. However, upon deeper introspection, Pakistan’s existing laws contain loopholes that continue to facilitate money laundering and tax evasion.
Statistics
During Oct 2013, the Governor of State Bank stated that more than $9 billion were illegally remitted outside Pakistan. There are no estimates available for money transferred through foreign currency accounts which were opened and protected by the Protection of Economic Reforms Act 1992.
Nawaz Sharif himself enacted this law during his earlier prime minister-ship, and several industrialists and politicians legalized their illegal money after the enactment of this Act according to the court statements and records present at that time.
Protection of Economic Reforms Act
The Protection of Economic Reforms Act section 5 and 9, and Income Tax Ordinance 2001 section 111(4) grants complete immunity from money laundering.
The Protection of Economic Reforms Act was passed in 1992 for the purpose of “creating a liberal environment for savings and investments and to create confidence in the establishment and continuity of liberal economic policies.” Pakistan had a controlled system of foreign exchange before this act was passed. Section 4 of this Act further states that:
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 takeout 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.
The 5th clause also grants immunity to foreign currency account holders against any form of inquiry by the Income Tax about the source of the money which was used to finance the foreign currency accounts. They are also exempted from income tax, wealth tax and compulsory Zakat deduction from the source. This ensures secrecy and even prevents the Central bank from imposing restrictions on them.
Historical Perspective
In 1999, the then President Rafiq Tarar approved an ordinance which made an amendment to remove immunity for the Pakistanis residing in Pakistan with foreign currency accounts for any balance of accounts created after December 16 1999. But in 2001 President Pervez Musharraf approved the Foreign Currency Accounts Protection Ordinance which reinstated the immunity.
Section 111(4) of the income tax law allows for whitening of black money through foreign remittances. Rough estimates indicate that around one fifths of the $19 billion remittances is local black money being whitened thanks to the Section 111(4) of the income tax ordinance.
Finance Minister Ishaq Dar said that the government was ready to change the Protection of Economic Reforms Act and Section 111(4) of the Income Tax Law, and that the recommendations for these would be finalized soon and could be submitted before or after the budget for approval. The changes would carry implications for accounts created in the future and not for the ones created before the amendment of the ordinance and the law.
Pro pti rather than pakistani
Very true.
Sirf Tasweer or headline dekh ker comment kerna bhe ghalt hy bhai sab
for your info baki article mey koe anti NOON baat nahi likhe hue ;-)
whoever points out corruption becomes pro this pro that, anti this anti that, what are you a patwari?
One needs to understand it is very difficult to open a Dollar Account in Pakistan, now that people are bringing money in through legal channels, adding burden to prove source or Foreign income is going to be very difficult for many. Not every Overseas worker has 9-5 office job, many drive Taxis, work as laborers, and asking their families to prove foreign source of Income would be forcing them back to old Hundi System. We may block few hundred people who are abusing the system at the cost of denying services to Hundred of Thousands of those who are legitimate users. We have a similar situation with Withholding Tax on Mobilie Balance Load. By all estimates, our Taxable population is about 3-4 Millions, but we are collecting Withholding Tax from 131 Million users. Not a very good way to Target the offenders….
ganja who started this all…………
Pakistanis abroad remit around 19 b US $ every year through official banking channels. In addition they bring around 30 to 40 b US $ every yean by hand whenever they visit Pakistan. These 30 to 40 b us $ are exchanged through money changers. These money changers help these rascals in money laundering. If these money changers business is stopped and normal banks are allowed to deposit foreign exchange, then Pakistan can get additional30 to 40 b US $.
if we’d not put corrupt people there in the Supreme Legislative body of the country we wouldn’t be crying now. No one is free from the consequence of their choice.