Govt aims to plug loopholes leading to “legal” money laundering

Former prime minister Nawaz Sharif had enacted PERA in 1992

ISLAMABAD:

The Pakistan Tehreek-e-Insaf (PTI) government has decided to repeal a 28-year old law that facilitated billions of dollars money laundering and tax evasion every year – a move if endorsed by the Parliament would bring an end to this continued practice.

The repeal of Protection of Economic Reforms Act (PERA) of 1992 is part of an under consideration new Investment Act that aims at promoting “more direct investment, domestic and foreign” in Pakistan, according to the draft bill.

The government also plans to repeal Foreign Private Investment Act of 1976.

The draft bill has been prepared by the Board of Investment (BOI) and is circulated for input of all relevant federal and provincial stakeholders.

Once endorsed by the stakeholders, the bill will be tabled for the approval of the federal cabinet and then the Parliament.

One of the key features of new proposed investment regime is to undo wrongs that had been done 28 years ago in the name of “creating a liberal environment for savings and investments in Pakistan”.

Former prime minister Nawaz Sharif had enacted the PERA in 1992. After its enactment, industrialists and politicians had whitened their illegal money, according to court records and statements of that period.

“Yes, Pakistan Foreign Private Investment Act 1976 and Protection of Economic Reforms Act 1992 will be repealed”, the BOI confirmed to The Express Tribune on Tuesday.

The investment board noted that the spirit of introducing new investment law was to consolidate all laws relating to investment and to address the gaps among existing laws and policies particularly the investment policy. 

The consolidation of law is a global practice being followed by the countries attracting investment.

The BOI said that the advantages of consolidating investment regulations into a code were both for the governments and prospective investors.

It maintained that for a prospective investor, finding most of the guarantees and rules applicable to its investment in a single text was much more convenient than having to review several laws and regulations to understand how open the country was and to be immediately reassured about the security of investment and property.

Sections 5 and 9 of the PERA, 1992 and Section 111(4) of the Income Tax Ordinance, 2001 have guaranteed complete immunity from disclosing source of assets.

However, the government has not yet abolished the section 111 (4) of the Income Tax Ordinance that also facilitates whitening of illegal money through foreign remittances.

The proposed draft of the Pakistan Investment Bill suggests that the government tried to strike a balance between its national responsibilities and facilitation of the new investment in the country, both foreign and local.

Low investment in terms of the size of Pakistan’s economy, estimated around 15%, is considered one of the impediments to sustainable economic growth. The regional countries have 25% to 35% investment to GDP ratios.

The BOI had been proposed to be the main authority for the purpose of promotion, facilitation and protection of direct investment in the country.

The government had proposed that the foreign investors “shall be entitled to conduct investment” into any and all sectors of the economy of the country and would be entitled to facilitations being availed by the local investors.

However, certain areas will remain off the limit of the foreign and local investors.

“All sectors and activities are open for foreign investment unless specifically prohibited or restricted for reasons of national security and public safety,” said the BOI.

The investment board observed that “media and manufacturing of consumable alcohol” sectors would not be opened for foreign investment.

Similarly, arms and ammunition, atomic energy, high explosive and currency and mint sectors would be closed for both domestic and foreign investment.

The sectors that will be allowed for foreign investment only through joint ventures with certain conditions include banking, engineering, agriculture, if “in these sectors foreign equity is less than 50%,” said the BOI.

For engineering and construction equity of foreign viz a viz local is 70:30. In agriculture it is 60:40, the board added.

The foreign investors would not need permissions before making investments but they will have to notify to the BOI, according to the bill.

Only those foreign companies can make investment that will comply with conditions sets in the Companies Act of 2017.

The foreign investors will have the freedom to manage their businesses and they will be given Most Favoured Nation (MFN) status.

Pakistan will also guarantee fair and equitable treatment to domestic and foreign investors with regard to the right to obtain information about decisions and right to legal recourse on matters concerning direct investment.

The BOI said that foreign investors in relation to the establishment, expansion, management, operation, and protection of their investments are entitled to treatment “No Less Favorable” than that granted to national investors in like circumstances as per the Foreign Private Investment (Promotion & Protection) Act 1976 and Protection of Economic Reforms Act of 1992.

The proposed investment law will consolidate such provisions and treatment to foreign investors will not be less favourable than accorded to local investors.

Pakistan would also guarantee that foreign assets in the country are not nationalised, except in case of emergency and war and full compensation at market rates will be paid.

The government has proposed that the foreign investors are allowed to remit funds without restrictions or delay and in a freely convertible currency, subject to rules and regulations of the central bank and Securities and Exchange Commission of Pakistan (SECP).

However, the government can block free transfer of funds to protect rights of creditors and employees.

“In the event of serious balance of payments and/or external financial difficulties, Pakistan may adopt or maintain restrictions on payments or transfers related to investments which are consistent with the relevant law and Pakistan’s international obligations.”

While responding to a question on penalising foreign investors for BOP crisis, the BOI stated that foreign investors would not be penalised for government’s actions. Pakistan follows very liberal regime with regards to repatriation.

The investment board declared that efforts will be made to bring more clarity for investors in the proposed investment law.

In matters of national security and outbreak of war and other emergency circumstances, the foreign investors would not be entitled to protections being offered under the proposed law.