The primary question is whether our legislators who vehemently promote ‘democracy’ as defined by them ever thought about the effect of this absurd regulation. Furthermore, whether our economic wizards and great proponents of free exchange regime ever highlighted this absurdity. From 1992 to 2017 I was one of the few (regressive minded termed as anti-business) people who publicly stated this manner of operation of PERA is criminal in substance though legal as per law. In all my speeches at the post budget seminars from 1992 to 2017 I raised this point. But all my observations were set aside as anti-business. There were few others like Dr Ikram Ul Haque of Lahore and Income Tax Bar Association that raised concern on this subject. I have to admit that our voice was too weak and we failed in making any change. In my view there was improper understanding of long term effects. Short term benefits overwhelmed us as we are here in this world for a short time.
Then by the grace of God, there was ‘Panama Leaks’ in 2016. Even prior to that there was a revelation by the then Finance Minister Ishaq Dar that Pakistani citizens own USD 200 billion outside Pakistan. This statement was based on a summary prepared by Ministry of Finance which is on record. This was a brilliant step by Ishaq Dar. He did a remarkable job by at least identifying the mistake. In 2016, I wrote a series of articles on this subject in this newspaper and all these articles were compiled in my book ‘Panama Leaks: A Blessing in Disguise’. In that book I agreed with Dar that Pakistanis have accumulated huge sums outside Pakistan invariably on account of a wrong law named PERA. This was a wrong but legal process. Resultantly there was no legal basis to bring back this money. Thus in order to streamline the process and compliance for FATF I proposed an ‘asset declaration law’ for such assets. Those who disagree with the declaration of foreign asset law are humbly requested to provide any other manner of bringing that money back and tax the same in Pakistan once it is established that such sums were protected from charge for evasion of taxes. Such accumulations were made under a legally valid law by the name of PERA. The features of that asset declaration law as described in my book referred above and the two asset declaration laws are exactly similar. This is not an amnesty. It is an asset declaration with a minimum tax. I have explained the difference between the asset declaration law and an income tax amnesty under the Income Tax law in my article last week in the monthly magazine Narratives. Furthermore in that book I disagreed with Dar’s figure of USD 200 billion and estimated that excluding the political side, the business money lying outside was around USD 100 billion.
After the ‘Panama Leak’ this matter was taken up by the Supreme Court under ‘suo-motu’ proceedings. Mahmood Mandviwala, a Karachi-based lawyer, and I were appointed amicus curiae in that case. Tariq Bajwa the then Governor State Bank of Pakistan was also called by the court. We explained the law before the Supreme Court of Pakistan and stated firmly that we are not aware of any manner through which such money can be brought back from outside Pakistan. My question then and now is whether or not any taxation or foreign exchange regulation can be implemented in the presence of such an absurd law. Then, after the order of the Supreme Court that supported the promulgation of an asset declaration law, appropriate steps was taken by the then Finance Minister Miftah Ismail during the government of Shahid Khaqan Abbasi through the 2017 Budget. There steps are commendable. This was a correct step but too late. The aforesaid state sponsored corruption for over 30 years destroyed the very fabric of society and the tax culture. The correction rightly made was restricting the purchase of foreign currency against Pak Rupee for people not having a ‘National Tax Number’ (NTN). Furthermore Section 111(4) was appropriately amended. My primary question is the social accountability of persons in government, legislators and economic wizards for the continuation of this absurd regime for over 30 years. I know that this is beyond the scope of National Accountability Bureau (NAB) however people at large should know that in addition to personal corruption this country’s tax structure has been defiled by such instances of state sponsored corruption. I give credit to the government of Imran Khan that they agreed to amend PERA accordingly and instituted correction. Nevertheless a lot is still required to be done.
The next glaring example of state sponsored corruption is price prescribed for registering immovable property. These are called ‘District Collectors’ values (DC Values). These values are invariably not in line with the real values of the properties. Prior to revision in 2018 and 2019 it was a generally accepted view that such values were around 25 to 30 percent of the real value. For example if the real value of a plot was Rs. 100 million its DC value was around Rs. 25 million. All of us, including all of well-known proponents of equitable tax system undertook property transactions at DC value and the balance of Rs 75 million was paid out of books. This was the easiest and simplest method of parking untaxed wealth. I wrote over ten detailed articles on this subject and suggested solution for this menace. The best solution is the provision contained in Indian regulations where the government has the pre-emptive right to acquire such properties at 10 percent above the declared price. My suggestion was initially accepted by Shaukat Aziz, the then Finance Minister, however, I was later told that this decent solution was against some misquoted provision of Shariah relating to personal rights for valuation of a transaction. I am not a scholar of Islami Fiqh however my limited research denies this perception. This subject needs ‘Ijtehad’ if required. This represents another problem in our society, namely interpretation of divine revelations for ‘malafide’ reasons.
Under the provisions of law as applied upto 1980’s there was no compulsion for the tax officer to accept the declared DC price. It was treated only as indicative price and any apparent difference was legally taxable as unexplained investment by the seller. In late 1980’s in the wake of promotion of ‘free market’ and other such reforms a circular was issued by the Federal Board of Revenue that effectively stated that DC values are to be invariably accepted. This was a clear case of state sponsored corruption and we all agreed and lived with it. The result was very simple being parking of untaxed wealth in plots. People became rich and the country became poor. No tax for the government and open plot became the best investment vehicle and parking lot of choice for tax evaded money in the country. In my view this was the biggest economic crime in the history of Pakistan. The last and final nail in the coffin was placed in 2017 when a provision was inserted in
income tax law which prescribed that the difference between the two prices will be deemed to be white money. Whatever was in the circular was provided a legal protection. This was the worst provision ever introduced in any country. Our legislators and wizards of economics remained silent. I think the effect was not properly appreciated. Now we all are having drawing room post dinner conversations on low tax base on some illusionary concept and totally ignore the gates which were opened through legal provisions for state sponsored protection for evasion of taxes and legally protected parking place. This is the economic history on the fiscal side.
I said in my post that Prime Minister Imran Khan has challenged the status quo. In my view removal of that absurd provision from the Income Tax Law through Finance Act, 2019 and substantial upward revision of DC Value is one step enough to justify continuation of the economic agenda of Imran Khan’s government. People will realize the effect of this action in days to come. I was the Chairman of FBR when this provision was made. The kind of pressure which the economic team of Imran Khan faced cannot be imagined by the people who were sitting outside. There may be various views on the economic policies of Imran Khan on any matter however the steps undertaken with regard to ‘property valuation’ will always be a part of history and feather in the cap for courage. There were all kinds of threats around us. In this regard it is important to mention that DHA which is a major player in real estate sector was totally supportive on this matter despite the fact that there was a loss for person who was allotted the plot initially.
In the articles which will follow I will explain other cases of state sponsored corruption in fiscal policies some of which are still continuing, however it will be my suggestion to the common people and economists at large to identify the provisions of law which directly provide glaring opportunity for such state sponsored measures allowing tax evasion. There may be difference of views on these matters, however, we all should accept that whatever is good for the state will ultimately be good for us. Thus, leaving aside political and ideological differences we all should work for identification and then abolition of cases of state sponsored corruption in fiscal policy matters. A movement in this regard has been started. It is suggested that there should not be any point scoring on such national issues.
(Concluded)
Copyright Business Recorder, 2020
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