If Tax Avoidance Is Legal Then All Pakistani IT Companies Should Move to Dubai

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.

Also Read: Panama Leaks: List of Pakistanis Involved in Off Shores Shell Companies

Talal is a Director at ProPakistani. Reach out at [email protected]

  • Very true! The recent tax amnesties however exposes the influence of these goose on FBR

  • Good article.
    If I look around me (Faisalabad), most of yarn market dealers are not listed in FBR….. means no NTN, no account, no tax, no tension. They work on parchi system which moves on like a cheque from one supplier to other and keep cash in home, office or bank lockers.
    Some of the big guns have already registered companies in Dubai (sorry can’t quote names…. I am a banker).

  • The people of Pakistan are generally illiterate which is why it is difficult to teach them because on top of being illiterate they are stubborn too. Having a company in Dubai or Singapore or British Virgin Island or Panama is not illegal in ANY way. And getting all your transaction in any of these places is ALSO NOT ILLEGAL. Whatever the money is going to come to Pakistan should be through proper channel and taxable. If anyone is doing this in the wrong way, then that’s illegal. AXACT had their FZ-LLC company in Dubai and all the transactions from their clients were done to that company. This is 100% legal. Now they had a back-office in Pakistan, so the expenses which were occurred in Pakistan were taken out from that FZ-LLC and salaries were paid in Pakistan. Their process of getting the money from FZ-LLC to PVT LTD in Pakistan was totally legal.

    So whatever Hussain Nawaz said, is totally legal and true. And I don’t even cal it “Tax Avoidance”. I call it a normal “Business” with its branch in an off-shore location.

    • The problem isn’t of legal and illegality of Tax havens. The problem is the ‘SOURCE’. Where did the money come from and 2. How was the money transferred out of Pakistan?

      • No one is talking about the money transferred Out of Pakistan (being specific to the post here). We are only talking about the company’s formation in off-shore location and earning from there.

        • Gadhay k ooper kitabien laadnay se jaisey woh aalim nahi ban jata usi tarah, dou char lafz angreezi k bolne se koi perha likha nahi ho jata.
          Koi angreezi main is ka tarjuma kar de takay Bhai ko samjh ajaye.

    • Another question (as stated hundreds of time) is ‘HOW they get the money to start those businesses?’

    • ویسے EXACT کا سب کام لیگل تھا تو دھرے کیوں گئے ہیں بیچارے ؟ یا ان کے پیچھے کوئی وزیراعظم/وزیر
      نہیں تھا ؟ سوال جاہلانہ لگ سکتا ہے لیکن کیا کریں پاکستانی جاہلوں نے تو پاکستان میں رہنا ہے وہ offshore لیگل کمپیناں تو نہیں بنا سکتے-

  • Who cares. My own business is linked with an American company and they send me payment from America. So, in a nutshell, my income also does not have income tax liability as money sent from outside the country via legal agents is exempted from Income tax.

    • Same here but the difference is we are spending our earned money in pakistan. Investing in Pakistan’s economy.

  • A foreign investor or FDI can invest in Pakistan, and repatriate all his/its profits (really 100%) back to his/its home country. We have allowed it.
    Similarly, we have explicitly allowed business operations using shell companies and off-shore bank accounts. Many countries, even in EU, have. The only difference is that we do not bother to seek documentation.
    No entity in the country can ask source of your remittance. Ask special advisor to PM on revenue. he got more than $7 million for his sugar mills. When asked by FMU of SBP, he simply said that he did not know how it came in. Simple as that. There is NO law to make him and people like him divulge any details.

    Big names like Google, Microsoft, Apple etc STEAL taxes by means of offshore companies, trusts, NPOs, open source projects (yes you read it right) and what not. US IRS started a crackdown only recently.
    The list of our controversial decisions is really long. We are begging for incoming investments all the time. So perhaps we have no alternative. That is why we have tax laws with no legs to stand on.
    Hussain Nawaz audaciously admitted to have stolen tax from British authorities. Instead of propaganda, our opposition should sue him in Britain. But they wont because they are waiting for their turn in the expose’. Data of only one processor of one tax haven was leaked – and only a very minute volume was made public. So much is still out there, somewhere.

    Standing ovation for everyone who dared to leak secrets of the mighty elite of the globe. At least peasants like us will have a moment to rejoice.

  • What taxes does IT sector pay on foreign remittance other than income taxes? That still will be applicable on whatever you bring here to pay salaries.

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