Dr. Muhammad Ashfaq Ahmed, who is currently Chairman of Federal Board of Revenue (FBR), in his one of research papers pointed out that the United Arab Emirates (UAE) is favorite destination for parking offshore undisclosed funds by Pakistanis. “The UAE with a tally of Rs346.2 billion turned out to be the favorite most destination with Pakistanis when it comes to parking funds offshore.”
Dr. Muhammad Ashfaq Ahmed, appointed as chairman on August 24, 2021. However, this paper was published before Dr. Ashfaq assumed the charge of FBR chairman.
Dr. Ashfaq in the mentioned above paper on Economy under Elites regarding Tax Amnesty Schemes, 2018, noted about favorite places for Pakistanis regarding parking undisclosed funds/assets. According to him, after the UAE, then comes Switzerland at Rs114.8 billion, UK at Rs 89.7 billion, Singapore at Rs. 87.3 billion, British Virgin Islands at Rs. 48.9 billion, Canada at Rs. 25.8 billion, US at Rs. 23.3 billion, Jersey at Rs. 14 billion and Panama at Rs. 9.5 billion as the choicest ten jurisdictions with Pakistanis to maintain undisclosed bank accounts and assets.
“In fact, out of the top 10 jurisdictions except with UK, Singapore and Jersey, Pakistan is still facing legal or administrative hurdles in undertaking effective exchange of information,” Dr. Ashfaq said.
Discussing about the outcome of the Foreign Amnesty Scheme, 2018, he said that it had failed to produce desired results. It had been projected that under the amnesty scheme 2018, the funds siphoned off from Pakistan could be repatriated in excess of $4 billion.
According to him, the value of total liquid assets that were not repatriated comes to Rs. 727.85 billion, immovable assets to Rs. 322.56 billion, liquid assets invested in government securities to Rs. 3.34 billion, and liquid assets that were repatriated to Rs. 6.42 billion. The total tax collection in US dollars comes to 285 million. “The outcomes of FAS, 2018 would go down as highly disappointing keeping in view the quantum of amnestization i.e. negligible tax rate, no penalty, no default surcharge and no prosecution.”
Moreover, absolute confidentiality, the possibility to declare cash without having to disclose its particulars were unprecedented incentives that also failed to lure foreign asset holders into availing FAS, 2018 in hordes in spite of Pakistan’s sizeable offshore problem.
About the implications of the amnesty scheme, Dr. Ashfaq said in fact, about 95 percent of total amnesty declarants happened to be pre-existing taxpayers clearly demonstrating “that the real potential for increasing revenues lies with under-filers.”
This realization warranted substantial investments in the system as well as policy fine-tuning. Most of the Pakistanis, whose substantial offshore bank and financial accounts had been reported, turned out to be in the export and import sectors, which meant that they were either under-invoicing exports or over-invoicing imports, and retaining the surplus foreign exchange outside Pakistan by circumventing relevant regulations.
This insight should have provided a policy improvement prompt but it has not. The so called “stick” that was brought in to justify the carrots was that under the pre-existing regime, unexplained incomes and assets could be included in a person’s income chargeable to tax in the year to which the incomes and assets related.
This was changed to make the unexplained incomes and assets located in overseas jurisdictions chargeable to tax in the year in which those were discovered.
“Likewise, the operation of section 111(4) [of Income Tax Ordinance, 2001], which allowed Pakistan-resident persons to round-trip as much untaxed incomes as they wanted into their account books, was restricted to Rs. 10 million. Similarly, a new disclosure requirement was introduced whereby every resident person being individual would be required to file foreign income and assets statement if he had foreign income of US$ 10,000 and offshore assets worth more than US$ 100,000, alongside his annual tax return. Some corresponding amendments were also made to the Protection of Economic Reforms Act, 1992.”
But all this was evidently insufficient in view of the intensity of the elite capture and size of the offshore evasion, he added.
“Tax amnestization seems fitting well in the theoretical framework of the elitist state which consistently shuns reality principle and chooses to walk down the pleasure principle pathway. The natural outcomes of this deliberate choice included embedded and endemic regulatory deficit, abnormal enrichment of individuals and entrepreneurs, and a fiscally impoverished and embittered state,” Dr. Ashfaq said in his conclusion of the paper.