Pakistani elite hid billions, reveals FBR chief
In a startling disclosure, Pakistan's tax chief said on Monday that there were hardly 12 Pakistanis who declared wealth of Rs10 billion ($36 million) or more in their returns a statement that shows the collapse of the tax machinery and its inability to expand the narrow base.
The Federal Board of Revenue (FBR) Chairman Rashid Langrial made the statement in his defence to stop the economic transactions like buying property, car or maintaining a bank account by ineligible persons, either filers or non-filers.
"Only 12 people declared assets of more than Rs10 billion in the last year, which is a huge under declaration", Langrial told the National Assembly Standing Committee's subcommittee on the issue of proposed restrictions on the real estate sector.
The meeting was chaired by Bilal Azhar Kayani, a member of the National Assembly (MNA) belonging to the Pakistan Muslim League-Nawaz (PML-N).
"Only 12 people with officially declared wealth of Rs10 billion or more does not reflect the true wealth of the Pakistanis. There are hundreds of housing societies in Pakistan and many dozens around Islamabad and Rawalpindi," the FBR chairman continued.
India has over 100 richest persons with net worth in billions of dollars. India's 100th richest person's worth is $3.3 billion, while its richest person Mukesh Ambani's net worth is $119.5 billion, according to the Forbes.
"For the past 78 years, we have been running the country on excuses that measures to broaden the tax base can undermine the economy and it is not just the responsibility of the FBR to expand the tax base and run the system of the country," remarked the chairman FBR.
Langrial stressed that economic activities should have a link with the personal wealth of the people.
The government has proposed to disrupt economic transactions by people whose tax returns do not support such major purchases. There is also a proposal that only those persons can buy the property, whose declared assets can support such transactions. If the value of the declared asset is Rs100, the buyer can buy a property of up to Rs130 value, according to the proposal.
The FBR should consider exempting the reconciliation of up to Rs50 million assets, which will allow the people to declare their assets, recommended Arif Habib. "The draft bill is very dangerous and it leaves the buyers and the sellers of the property at the mercy of people who are ready to exploit," he added.
Habib further said that the businesses were badly affected in recent times and the people invested only in gold and dollars.
What is the need for introducing a proposal to stop purchase of properties by ineligible persons when the people have the legal obligations to file their income tax returns and the wealth statements at the end of the fiscal year, remarked Kayani, the convener of the committee.
In the last fiscal year, a little fewer than 1.7 million property transactions were carried out and 93.7% transactions had a value of less than Rs10 million, said Langrial. He added that there were only 2.5% transactions that would be affected by the new legislation.
"Our objective is to target only 2.5% households," Langrial said. However, Ashfaq Tola, the president of the Tola Associates a tax advisory firm – warned the FBR not to disrupt the system for the sake of 41,801 or 2.5% transactions.
The FBR should not bring the entire real estate sector under the clouds for these few thousands transactions, he said. Tola added that if the FBR could not handle these 41,801 people without disrupting the entire system then there was a serious question mark on the ability of the system.
The FBR had shared the value-wise brief of the 1.7 million property transactions during the last year. Only 3,250 transactions having value of more than Rs50 million were declared with the property registration authorities in the last year.
The actual prices are far higher than the declared values of these properties at the time of registration, said MNA Jawad Hanid Khan.
The FBR should first explain the results of the powers of blocking the sim cards and disconnect the electricity and gas connections before asking for new powers, said MNA Usama Ahmed Mela.
Langrial said that the taxes could not be recovered through normal means until the entire system was changed, all the officers of the FBR were honest and the civil laws were reformed. He confessed that there were thousands of people who were buying properties every year, they were filers but still did not disclose those assets in their returns.
"The decision to stop property transactions by ineligible persons would open new avenues of money laundering from Pakistan," warned MNA Muhammad Mobeen Arif. Langrial replied that the FBR was conscious of the fact that the housing sector had been affected and "the FBR has a role in it".
In order to reverse the trend, He added, the government was seriously considering reducing taxes on the property transactions, subject to certain approvals.
Dr Hamid Atiq Sarwar, member operations of the FBR, said that during the first half of this fiscal year, 735,000 property transactions were carried out and out of which 500,000 transactions were by the non-filers. He said that post-purchase of asset audits did not help, as the success rate was only 3%.
"The proposals are no more in the hands of the FBR and it is now up to the standing committee what kind of decision it takes, Langrial said.
The sub-committee would meet again on Thursday to propose a way forward.
It emerged during the discussion that the panel may recommend to the National Assembly that in case the property value was below Rs10 million, there should not be any requirement to first justify the source of buying the property.