$30b treasure trove

OECD data was also allegedly abused by the PTI government

It appears that only a fraction of the Pakistani wealth abroad is actually taxable in Pakistan, either due to international tax agreements and rules or the various amnesties granted by successive governments. According to a recent report in this newspaper, Pakistan has received data from the Organisation for Economic Cooperation and Development (OECD) -- an intergovernmental economic forum with 38 member countries – relating to about $35 billion in wealth held overseas by Pakistani nationals, but almost $30 billion of this amount is not actionable. This is due to a host or reasons including duplicate reporting, taxes having already been paid, immunity under amnesty schemes, and exemptions for non-resident Pakistanis on overseas income.

The OECD data suggests that only about 4,000 total accounts containing about $5 billion are actionable by the Federal Board of Revenue (FBR), meaning that taxes and related fines can be imposed on them. However, political rhetoric and unscrupulous officials in the FBR have come together to cause problems for upstanding Pakistani citizens abroad — FBR officials have been accused of trying to force exempted overseas Pakistanis to pay undue taxes or even bribes, and also to harass people in Pakistan with declared foreign assets. Several related complaints are also being investigated by the Federal Tax Ombudsman. What makes the matter worse is the fact that while these officials have time to harass law-abiding citizens, no action has been taken yet on about one-third of the actionable funds.

The OECD data was also allegedly abused by the PTI government. Under OECD protocols, the data may only be used for the recovery of taxes. However, reports suggest that Imran Khan-instituted Asset Recovery Unit (ARU) — which was supposed to recover “$200 billion” in overseas wealth — ‘somehow’ got its hands on the OECD data and used it to harass Supreme Court Justice Qazi Faez Isa and others. This misuse of data could be enough to make the OECD think twice about sharing data in the future, as innocent victims of ARU harassment could pursue legal action against the body in certain jurisdictions. Given that the controversial ARU has achieved little of note since its inception, this would probably be its biggest achievement — making a handful of rich people richer.

Meanwhile, the FBR Directorate General of International Taxes, which is the appropriate body to take action on the OECD data, had no permanent head for a long time. But even if it did, former FBR chief Shabbar Zaidi admitted that taxmen lacked understanding of several issues at play, including perfectly legal foreign trusts and variances caused by reporting times and foreign tax codes. Zaidi also admits that some harassment took place, although he credited former finance minister Shaukat Tarin with “immediately” taking action to stop this when he was made aware.

Wealth held abroad is a real problem, but still a minor one in the greater scheme of things. It is high time that the authorities focused on properly tracking and fairly taxing domestic income – especially in these times of severe economic crisis when the need to create fiscal space to cater to service delivery is all the more important.

Published in The Express Tribune, May 16th, 2022.

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