Although rampant corruption in Pakistan has continued by damaging
the social and institutional fabric of the country, yet it has again come into
limelight, after the massive leak of secret documents from Panama-based law
firm Mossack Fonseca, which were released on April 3, this year.
The level of tax avoidance and money laundering, disclosed
in the Panama Papers Leaks run into the several hundreds of billions of
dollars, points out the details and names of hundreds of powerful and leading
persons across the world. Some countries have announced investigation, while in
some countries, the opposition parties and the people are conducting protests,
after the revelations of corruption, money laundering, and financial secrecy in
relation to their nations.
Iceland’s Prime Minister Sigmundar Davio Gunnlaugsson and
Ukrainian Prime Minister Arseniy Yatsenyuk resigned in wake of protests and
political pressure inside their countries regarding the revelations of the
Panama Papers. British Prime Minister David Cameron is facing increasing calls
to resign in wake of public protests after he admitted that he profited from
his father’s offshore trust.
Panama documents also include the names of over 200
Pakistanis, including the current Prime Minister Nawaz Sharif with
allegations of tax evasion, fraud, and money laundering—Sharif’s political
career since the beginning. In this regard, The Independent in 1998 wrote, “The
investigation into Mr. Sharif and his family was originally commissioned in
1993 by an interim government, after Mr. Sharif’s dismissal as prime minister,
which asked the agency to investigate 13 separate allegations of corruption and
money laundering through overseas bank accounts.”
While the Panama Leaks disclosed, “Prime Minister Nawaz
Sharif’s close family has made millions of dollars of investments in a number
of offshore companies.” In this regard, Prime Minister Sharif also
addressed the nation and promised appropriate review, while denying that any of
his family members were involved in any kind of corruption.
The opposition parties especially Pakistan Tehreek-e-Isnaaf
(PTI) and Pakistan Peoples Parties (PPP) have been contacting one another,
demanding an impartial investigation about the Panama Leaks in relation to the
prime minister, while some are demanding that Nawaz Sharif should quit the
government. Meanwhile the PTI has decided to launch protests against the
federal government, if it fails to form an independent commission to prosecute
the accusations, made in Panama Papers.
However the Panama
files highlight Pakistan’s
national problem of corruption—especially linked to tax evasion and money laundering.
In fact, illicit capital movement is largely due to lax
enforcement of capital and trade controls by regulatory bodies, which results
into corruption. Hence, Pakistan
needs an effective mechanism to control various forms of corruption which have
infected almost every sector of the country.
In this respect, the country requires to enforce an
effective implementation of trade and exchange controls regulation with
complete overhauling of customs administration and simplification of tariff
structure etc. It may be stressed that to control Hundi/Hawals (correspondent)
businesses, their related individuals or entities be traced by banking
authorities who are holding large sums of funds to settle laundered money in
Pakistan.
For the purpose, necessary arrangements may be made with
other countries through bilateral agreements about prompt sharing of
information, concerning private citizens’ bank accounts and trade-related
transactions to and from Pakistan.
In this regard, UAE-Nigeria bilateral agreements, signed on
January 19, 2016 provide a model to eradicate corruption in Pakistan.
Determined to recover Nigeria’s
stolen funds stashed in foreign banks, President Muhammadu Buhari led Federal
government, and signed different bilateral agreements with the United Arab Emirates,
(UAE). The agreements were essentially on trade, finance and judicial matters.
In this context, The Minister of Justice, Abubakar Malami
and his counterpart in the UAE, Sultan Bin Saeed Albadi signed the Judicial
Agreements on Extradition, Transfer of Sentenced Persons, Mutual Legal
Assistance on Criminal Matters, and Mutual Legal Assistance on Criminal and
Commercial Matters, which include the recovery and repatriation of stolen
wealth.
Speaking at a reception after the signing of the
agreements, President Buhari reiterated his commitment to fighting corruption
and restoring Nigeria’s
dignity in the comity of nations.
It is mentionable that the incumbent Federal Finance
Minister Mohammad Ishaq Dar had once staggered the National Assembly in 2014
that at least $200 billion of ‘Pakistani money’ was stashed away in Swiss
banks. He had also announced that Pakistan was considering ways to utilize new
Swiss law ‘The Restitution of illicit Assets Act, 2010’ (RIAA) to obtain
information about illegally deposited money in Swiss banks and take steps to
get it back. Ironically, no further development has been reported, this also
needs to be pursued vigorously.
According to the Federal Board of Revenue (FBR), less than
0.5 per cent of Pakistanis pay income tax. That’s just 750,000 individuals out
of a population of some 180 million. Tax revenue in Pakistan, as a proportion of GDP is
around nine per cent—compared with 14 per cent for countries with similar per
capita incomes. Until Pakistan
can raise enough money through tax, it will continue to be excessively
dependent on loans and foreign aid. Debt to repay loans now stands at $60
billion. This means that over 60 per cent of Pakistan’s federal revenue is spent
simply on paying back interest and debt every year, instead of being spent on
vital services, such as education, health and infrastructure.
However, the government needs to do is to keep the rates of
taxes low, number of taxes reduced, and the tax net broad-based. As regards,
income tax, a far better strategy is to have a flat tax system. And, of course,
there should be no exemptions and tax holidays since this is what is used in
the interest of the privileged and powerful groups of the society at the cost
of other sections of society.
Present system of taxation is not good for the ordinary
persons as well as for Pakistan’s
international friends who want to trade and not give further aid. As a matter
of fact, the problem starts at the top. Owing to avoidance of paying their fair
share of taxes by wealthy individuals and elected politicians in Pakistan, the
burden is shared by the ordinary citizens. These wealthy people or politicians
should pave the way by paying actual amount of taxes, helping to close tax
loopholes and encourage others to pay what they owe. Sadly, for now anyway, not
all these people are the role models they should be.
Now, enough tax has been raised, but not to fully finance
improvements in the quality of life for poor people. Definitely, it cannot be
good for Pakistan
that the elite can afford luxury cars and foreign trips, but cannot afford to
pay their real taxes, while concealing their actual assets.
While, the government is also looking to remove exemptions,
simplify the tax collection system and drive out corruption. On the other side,
if more persons are paying their taxes, it is essential that they want that
their money is being spent effectively on public services such as education,
health, governance etc. Therefore, the rulers must secure value for their
money, while many people in Pakistan
live below the poverty line.
As part of the mechanism to discourage corruption in Pakistan, the
government must also ensure transparency in collection of taxes. In this
connection, the more open and transparent process will provide less opportunity
for malfeasance and abuse.
Email: sajjad_logic@yahoo.com
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