Pakistan to Ask For More Time From FATF to Meet Conditions

The government is all set to offer the Financial Action Task Force (FATF) an assessment of the real-term slump in business fields and tax revenues.

This assessment would be on the efforts of the federal government and provinces in meeting stringent conditions for monitoring money transactions in the country. This monitoring is being implemented through the Financial Monitoring Unit, on data acquired from the banking sector and the Federal Board of Revenue (FBR) for analysis of transactions suspected of money laundering.

The monitoring mechanism has, as per the FBR evaluation, triggered a growing scare especially among the medium and large scale investors in goods and services. This has also triggered a culture of hoarding money and its diversion from businesses of production and supplies towards the purchase of dollar, gold, and bonds, FBR sources revealed.

Although investors have been exempted from disclosure of the source of money in the real estate sector under a stipulated timeline, a large number of potential investors continue to shy away from engaging explicitly in this sector too.

The country’s revenue collection situation in the last six fiscal months showed a decline on the internal front whereas imports offered 52 percent of the total tax deposits. This situation has become more noticeable in the October-December period of 2021 (second fiscal quarter) when the import of food items slumped but energy, palm oil, and machinery figured higher on the import list.

The report being prepared might carry a request for relaxing the timeline for implementing the conditions for putting in place monitoring mechanisms in the legal, accounting, banking, policing, and judicial fields. This might help to reduce the mounting investment-related scare as well as slide in the revenue collection, FBR authorities said.

The FBR sources said this request is being made in the backdrop of the initial adverse impact of the dollar price hike on businesses in the follow-up of implementing the FATF-listed rules for regulating the country’s taxation and banking transactions. The ensuing crunch on the financing front prevented the system from encouraging the investors to come to play openly in the transactions-business-tax payment cycle.

This impact analysis is also being undertaken in the particular context of the slump in the country’s taxable sales and services and reduction in the documented transactions, they added. The FBR has been projecting that dollar-related price hikes in the imported goods arena and simultaneous growth of sale-monitoring- tax mechanism would ensure windfall in tax of larger amounts.

This was an overall perception on the part of numerous trend-watchers before and after the launch of mini-budget 2022. The FBR has been sharing a pessimistic view with the State Bank of Pakistan, Ministry of Finance, and the FMU on regular basis in the second week of January. The FBR realized that the desired windfall of price hikes would be hard to acquire in the post-implementation (of FATF conditionalities) situation especially when regular payment of tax refund was becoming an integral feature of taxpayer culture.

On the other hand, investors that engage consultants for acquiring the latest assessment of the threat of being tracked down through their documented transactions data have, over the past year or so, been growlingly active off the ledger in disposing of their deals in gold, dollar, and real estate. To this end, they have elected to stay as sleeping partners in business ventures that elude authorities tracking down active bank accounts.

They sought documentation of partnership without explicit titles of businesses, a trend that became market routine over the past couple of years. Therefore, by seeking a new and extended FATF timeline the government would be expressing urgency to cool it down for the time being and let taxable activity not go off the ledger beyond a manageable limit.