Dr Ikramul Haq, Huzaima Bukhari March 26, 2017
Pakistan has been borrowing or begging for bailouts while trillions of untaxed money are lying abroad
Federal Finance Minister Ishaq Dar, on March 7, 2017, told the National Assembly that “Pakistan will sign an agreement with Switzerland on exchange of information regarding bank accounts on March 21”. He informed the parliamentarians that “several media reports have surfaced over the years alleging that Pakistanis have evaded taxes — a hefty amount of over $180-200 billion — and stashed the money in Swiss banks”. He claimed the situation demanded that Pakistan should approach the Swiss government for a treaty surrounding the exchange of information.
Ishaq Dar did not tell the House what happened in August 2014 when the Chairman of Federal Board of Revenue (FBR) was to lead a delegation to Switzerland to “re-negotiate and upgrade treaty on Avoidance of Double Taxation [DTA] to retrieve and/or tax undeclared money deposited in the Swiss banks by Pakistani nationals. At the last moment, he was asked not to go and the Chief International Taxes, FBR, was sent alone! It was anticipated that there would be no agreement or if at all Switzerland did agree, they would disown it making the junior officer a scapegoat by alleging that he was not authorised to sign it! The plan worked as the politicians desired!!
The treaty renegotiated and inked after talks [August 24-26, 2014] was blocked first by political masters and reasons were found subsequently through hand-picked bureaucrats that was exposed in Pakistani cash in Swiss banks pulled out, The Express Tribune, February 22, 2017. The reasons for not honouring the renegotiated treaty are sham. It was claimed that reduction in rate of dividends to 5 per cent was unacceptable. Pakistan has 5 per cent dividends rate with over a dozen countries — this reduced rate was signed with Spain and Czech Republic in 2016, after political masters frustrated the Swiss Treaty!
Most-favoured nation status was just another play up, since Pakistan got a much better deal on royalty, interest and shipping. Swiss wanted assurance that if Pakistan gave better terms to any other country, they would demand the same. It was more of a technical thing hung in the distant future and also contingent upon many ‘ifs’ and ‘butts’ and had no price tag for Pakistan immediately as wrongly claimed in National Assembly by the finance minister.
Though our worthy finance minister was fully aware of the fact that majority of the offshore companies of Pakistanis were registered in British Virgin Islands, he did not take any initiative to sign a Tax Information Exchange Agreement (TIEA) with British Virgin Islands that India signed way back in 2011. Till today, no serious effort has been made for retrieving looted wealth invoking Swiss law (Foreign Illicit Assets Act (FIAA) of 18 December 2015) or tax losses caused by non-reporting of income by Pakistanis having off-shore accounts.
On the contrary, the government is seriously considering extending amnesty to them! Even the Opposition has not tabled any bill in the Parliament to show its interest and concern in the matter proving emphatically that an unholy, anti-people alliance lurks among all forces of loot on this issue. It is high time that all the documents related to 2014 negotiations for Swiss Treaty are made public so that masses come to know about the game our politician play!
On March 21, 2017, according to a release of Press Information Department, Pakistan and Switzerland signed the revised Agreement on Avoidance of Double Taxation with respect to Taxes on Income. It says: “One of the highlights of the re-negotiated treaty is the replacement of the Article on ‘Exchange of Information’ with the new one reflecting the internationally accepted standard which is based on the OECD Model. The new Article on Exchange of Information will considerably expand the existing scope of information to be obtained on request basis for the enforcement of domestic tax laws. It will also provide access to bank information for tax purposes and such information shall not be refused solely because the information is held by a bank or other financial institution. For this purpose, the requesting state will be providing information to the requested state such as the identity of the person under investigation and period of time for which the information is requested.”
On October 1, 2010, the Swiss Parliament passed a law, The Restitution of Illicit Assets Act, 2010 (RIAA), empowering the Swiss Federal Tax Administration (FTA) to sign DTAs based on revised Article 26 of the OECD Model Tax Convention and cooperate with international requests for exchange of bank information of all kinds. In the wake of this development, many countries approached Switzerland to upgrade their DTAs to incorporate OECD’s Article 26.
The United States, Germany, France, United Kingdom, the Netherlands, Qatar, and India, after incorporating revised Article 26 of OECD, started reaping notable tax revenue gains and receiving capital back from Switzerland. Our men in power tried to hoodwink the masses by saying that they were going for Organization for Economic Cooperation and Development (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters. They were just buying time to ensure that no information comes to Pakistan till the time they rule!
We have been repeatedly writing since 2010 stressing the government to approach Switzerland for re-negotiating the DTA, but the matter was constantly delayed by politicians. Though FBR moved a summary in 2013 for re-negotiating the DTA with Switzerland, the PPP government did not respond. At least three summaries moved from time to time were shoved under the carpet. The reasons behind this were discussed in detail in our article, ‘The Swiss accounts’, Business Recorder, September 9, 2013. Then President Asif Ali Zardari got his $60 million moved from Swiss banks and never bothered to inform the nation where the said money came from and how much tax was paid on it in Pakistan or elsewhere.
After pressure from inside and international donors, the present government gave approval on September 20, 2013 for renegotiation with the Swiss government, but played dirty tricks thereafter as narrated above. By not honouring the 2014 renegotiated treaty it allowed many people sufficient time to move away shady funds from Swiss banks. The fear is that now new treaty signed on March 21, 2017 will not yield the desired results after coming into force.
On March 9, 2014, the Ministry of Finance, in a written reply, told the National Assembly that the government “was engaging with Swiss authorities to get to the money, hidden away by various Pakistani nationals.” In a detailed response to a question raised by Dr Arif Alvi of the Pakistan Tahreek-i-Insaf (PTI), the ministry quoted statements by a Swiss banker and a former Swiss government minister: “One of the directors of Credit Suisse AG stated on record that $97 billion worth of Pakistani capital was deposited only in his bank.” Similarly, Micheline Calmy-Rey, a former Swiss Foreign Minister, “is reported to have put the amount of Pakistani money hidden in Switzerland at $200 billion — a statement that was never contradicted,” the statement added.
The Finance Ministry claimed that there were reasons to believe that the figures were correct. Later, Finance Minister Ishaq Dar said the government was working under the ambit of RIAA, which “allows the Swiss government to exchange information that was earlier considered confidential regarding money that might have been obtained illegally and deposited in Swiss banks”. He also briefed the House on the steps the government was taking to get the money back. All this proved to be a farce!
Amid a global squeeze on tax evasion, money laundering and blatant outflows of capital, Switzerland’s 11 largest banks, according to many reports, house nearly $7 trillion of the world’s total offshore liquidity stock of $32 trillion. Switzerland has traditionally been the oldest, the most formidable and the most popular secret banking jurisdiction, attracting massive sums of tax-evaded money from across the world into its banks with numbered-accounts. Since 2009, the US and EU have consistently been pressing Switzerland and other tax havens to allow international tax administrations to track illegal funds parked in their secretive banks.
The issue of tax avoidance by keeping accounts in tax havens has become a highly charged political issue in the world especially after Bahamas Leaks and Panama Leaks. Across much of Europe, particularly the richer northern countries are increasingly fed up with demands for bailout money from heavily indebted countries like Greece. A key demand of a recent bailout deal announced for Cyprus was that the nation should drastically shrink its role as a financial centre and, many in Germany suspect, a haven for money laundering.
In Pakistan’s case, we have been borrowing or begging for bailouts while trillions untaxed are lying abroad.
The successive governments in Pakistan, unfortunately, adopted a policy of appeasement towards tax cheats and looters of national wealth. Even private efforts to invoke extraordinary jurisdiction of Supreme Court and High Courts to retrieve looted wealth and untaxed money have not been fruitful. The Supreme Court in 2012 and 2013 declared the petitions filed by some individuals as “non-maintainable” and the same was the fate of many petitions in Lahore High Court. On the contrary, the Indian Supreme Court, in its historic decision of July 4, 2011 in the case of Ram Jethmalani and Other v Union of India [ (2011) 8 SCC 1=2011 PTR 1933 (S.C. Ind)], ordered to form a ‘Special Investigation Team’ (SIT) to supervise the government-led investigations into black money belonging to Indians, lying abroad. The Congress government did not implement it and went into review. However, the government of Narendra Modi after coming into power on May 26, 2014 immediately constituted SIT and has begun negotiations with Switzerland.