Real estate abroad: Govt ponders steps to curb flight of capital
Several property developers are investing in Dubai to dodge Pakistan laws, according to FBR probe
Several property developers are investing in Dubai to dodge Pakistan laws, according to FBR probe. PHOTO: REUTERS
ISLAMABAD:
The federal government is considering serious steps to curb the flight of capital from Pakistan through investment in real estate in the Gulf states.
The steps – which were recommended by the Directorate of Intelligence and Investigation - Inland Revenue (I&I-IR) of the Federal Board of Revenue (FBR) – include sourcing the names of Pakistanis who have invested in Dubai from UAE authorities in order to check their tax profiles. Investigations have revealed that Pakistanis investing in Dubai to avoid taxation and circumvent the country’s law include not just those trying to hide black money but property developers like Damac as well.
“The business activities of the companies involved in this practice are sufficient to prove that all the business deals are made in extremely shady manner to avoid the incidence of taxation and in clear violations of the rules/instructions of State Bank of Pakistan (SBP),” the I&I-IR report states.
It recommends that SBP consider imposing more conditions on transfer of funds through banking channels and that the Federal Investigation Agency (FIA) crack down on the hawala/hundi system of moving capital.
I&I-IR was activated to investigate investment by Pakistanis in these ventures after the publication of a news report in The Express Tribune that indicated that Pakistanis had invested $1.3 billion in Dubai real estate in the first quarter of 2014.
The Financial Monitoring Unit (FMU) was the first to raise the matter with the National Accountability Bureau (NAB) in January this year. It sent a letter highlighting the seriousness of the flight of capital from Pakistan through investment in Dubai real estate. The unit voiced reservations over full-page advertisements for investment in foreign real estate which were taken out in local newspapers by several real estate companies, including Damac.
I&I-IR took special interest in the issue and started investigating Damac’s marketing and roadshows in Karachi and Lahore. The information it collected revealed that Damac Properties Pakistan (Pvt) Ltd was incorporated with the Securities and Exchange Commission of Pakistan (SECP) on March 9, 2004, but that its shareholders Hussain Ali Habib Sajwani and Muhammad Ali Habib Sajwani had been registered as ‘non-residents’ with the Income Tax Department since April 20, 2005.
The company provided its address as 'Diplomat Room No 4, Marriot Hotel, Abdullah Haroon Road, Karachi’, but the hotel denied any such company was operating on its property. Records also showed that the company had never filed tax returns and paid no tax over these years.
I&I-IR believes Damac Properties Pakistan is a subsidiary of the Dubai-based Damac group and the impression being given that Damac Properties Dubai is conducting its marketing drive in Pakistan directly from Dubai is aimed at hoodwinking Pakistani tax authorities. The Damac group has seemingly availed the services of Ensign Communique (Pvt) Ltd for transmitting information and taking orders, but the latter, when probed, failed to provide any copy of its agreement with the Dubai-based developer.
“It is established beyond any doubt that Damac LLC Dubai, in order to promote its business without any incidence of taxation, registered a private limited company in Pakistan with non-resident directors and that too with wrong permanent address and without any bank account, but when this arrangement came to the notice of l&I-IR, it simply switched over its sale promotion/booking office to M/s Ensign Communique (Pvt) Ltd, so that not only all the investors are given safe passage from local taxation and transfer of capital abroad but at the same time leave no trail of its business transactions carried out and completed in Pakistan which are supposed to be taxed in light of the conventions of the treaty and relevant provisions of Income Tax Ordinance, 2001,” the I&I-IR report concludes.
Published in The Express Tribune, May 11th, 2015.
The federal government is considering serious steps to curb the flight of capital from Pakistan through investment in real estate in the Gulf states.
The steps – which were recommended by the Directorate of Intelligence and Investigation - Inland Revenue (I&I-IR) of the Federal Board of Revenue (FBR) – include sourcing the names of Pakistanis who have invested in Dubai from UAE authorities in order to check their tax profiles. Investigations have revealed that Pakistanis investing in Dubai to avoid taxation and circumvent the country’s law include not just those trying to hide black money but property developers like Damac as well.
“The business activities of the companies involved in this practice are sufficient to prove that all the business deals are made in extremely shady manner to avoid the incidence of taxation and in clear violations of the rules/instructions of State Bank of Pakistan (SBP),” the I&I-IR report states.
It recommends that SBP consider imposing more conditions on transfer of funds through banking channels and that the Federal Investigation Agency (FIA) crack down on the hawala/hundi system of moving capital.
I&I-IR was activated to investigate investment by Pakistanis in these ventures after the publication of a news report in The Express Tribune that indicated that Pakistanis had invested $1.3 billion in Dubai real estate in the first quarter of 2014.
The Financial Monitoring Unit (FMU) was the first to raise the matter with the National Accountability Bureau (NAB) in January this year. It sent a letter highlighting the seriousness of the flight of capital from Pakistan through investment in Dubai real estate. The unit voiced reservations over full-page advertisements for investment in foreign real estate which were taken out in local newspapers by several real estate companies, including Damac.
I&I-IR took special interest in the issue and started investigating Damac’s marketing and roadshows in Karachi and Lahore. The information it collected revealed that Damac Properties Pakistan (Pvt) Ltd was incorporated with the Securities and Exchange Commission of Pakistan (SECP) on March 9, 2004, but that its shareholders Hussain Ali Habib Sajwani and Muhammad Ali Habib Sajwani had been registered as ‘non-residents’ with the Income Tax Department since April 20, 2005.
The company provided its address as 'Diplomat Room No 4, Marriot Hotel, Abdullah Haroon Road, Karachi’, but the hotel denied any such company was operating on its property. Records also showed that the company had never filed tax returns and paid no tax over these years.
I&I-IR believes Damac Properties Pakistan is a subsidiary of the Dubai-based Damac group and the impression being given that Damac Properties Dubai is conducting its marketing drive in Pakistan directly from Dubai is aimed at hoodwinking Pakistani tax authorities. The Damac group has seemingly availed the services of Ensign Communique (Pvt) Ltd for transmitting information and taking orders, but the latter, when probed, failed to provide any copy of its agreement with the Dubai-based developer.
“It is established beyond any doubt that Damac LLC Dubai, in order to promote its business without any incidence of taxation, registered a private limited company in Pakistan with non-resident directors and that too with wrong permanent address and without any bank account, but when this arrangement came to the notice of l&I-IR, it simply switched over its sale promotion/booking office to M/s Ensign Communique (Pvt) Ltd, so that not only all the investors are given safe passage from local taxation and transfer of capital abroad but at the same time leave no trail of its business transactions carried out and completed in Pakistan which are supposed to be taxed in light of the conventions of the treaty and relevant provisions of Income Tax Ordinance, 2001,” the I&I-IR report concludes.
Published in The Express Tribune, May 11th, 2015.