The Panama Leaks have caused somewhat of a storm across the world. While people are marching across streets to demand resignations (in the case of Iceland), the climate in Pakistan is tamer in comparison.
Right now, the revelations are being used as political ammunition and although the Prime Minister has promised an inquiry, it seems like a concoction to placate opposition rather than something actionable.
Some don’t think the revelations are a big deal. For instance, take Hussain Nawaz, son of our current Prime Minister. In a talk show on TV, he proudly states that he’s the owner of the companies listed in the Panama Papers. He goes even further and says tax avoidance isn’t prohibited under any law in Pakistan and that’s what he’s done. Since everything done is legal, it’s not tax evasion.
This raises an interesting question. If people in the government are so brazenly working the books to reduce their tax bill, what’s stopping Pakistani IT companies from doing the same?
How to Avoid Tax (Since Its Legal as Per Hussain Nawaz)
The existence of tax havens is nothing new. It’s no secret that you can go to places like Dubai — most feasible location for IT companies of Pakistan — and register a company in less than 30,000 Dirhams (Rs. 1 Million) in any of the free zone there and do whatever you want. Even better, if you find a local sponsor — which is not a hard task — an LLC company can be registered in under 10,000 Dirhams (Rs. 300,000).
With such companies in Dubai, you get to maintain a bank account, office space, valid Visa(s) and anything else you need.
With an LLC registered in Dubai, you can keep your back-office (expenses) in Pakistan while doing all the financial transactions (revenues) in your company account in Dubai, which would be all tax free.
Back in Pakistan, since you wouldn’t be earning anything so you won’t be liable to any taxes.
So in less than a million rupees, you get everything you need to run a perfectly legitimate business, and without any taxes. But only if offshore companies and tax avoidance are legal, which it is — as per Mr. Hussain Nawaz.
Time to Change the Laws
The simple fact is that avoiding taxes is easy and apparently, legal. But it shouldn’t be. The Panama Papers have shined a light on the shady practices of the rich and while the government is introducing aggressive taxation policies for an already weary populace, our politicians and their families are sending all their money abroad.
And now with the ‘justifications’ thrown in for the Panama Papers, the government’s ethical authority stands utterly eroded. What’s good for the goose (government and its relatives) should also be good for the gander (Pakistani populace) right? Of course, but it’d only hurt our country.
So what we have to do is address this hypocrisy. It’s a hilarious notion that these people would introduce laws to regulate their own activity but that’s what we must demand. The lawmakers must come up with a framework for holding accountable those using shell companies to send money out of the country. It’s not hard to determine if an office has been setup to avoid tax or if it’s actually contributing to the business. But we have to start by admitting it’s a serious cause for concern.
At the end of the day, the issue is simple. If the people start following the governments lead in the case of tax avoidance, the country is doomed since it can’t get a slice of the every burgeoning IT sector.