FBR eyes billions in tax from Gulf investments

KARACHI: After having failed to expand the tax net within the country, the Federal Board of Revenue (FBR) is embarking on an highly ambitious mission to collect data of rich Pakistanis who have invested hundreds of billions of rupees in real estate in the Gulf countries, mainly the UAE, with the aim to tap into the alleged laundered money for collecting income tax.

At present the authorities have absolutely no clue of the amount that may have been laundered out of Pakistan, and invested into property there.

However, senior officials believe that with the help of the UAE authorities they would identify the tax evaders and collect between Rs300bn to Rs400bn in additional taxes.

A high-ranking official of FBR confided to Dawn on telephone from Islamabad that up to Rs400bn could be collected in direct taxes (income tax) once the government invokes the treaty between Pakistan and UAE for the Avoidance of Double Taxation and prevention of fiscal evasion with respect to taxes on income, and the authorities in the Gulf state agree to provide data of the last five years of all the Pakistani investors.

It is a daunting task as the UAE authorities may not like to disturb their booming property market. The key to this entire exercise is the implementation of the tax evasion treaty.

The official said that sub article (1) of Article 27 of the treaty between the two countries explicitly states: “The competent authorities of the contracting states shall exchange such information (including documents) as is necessary for carrying out the provisions of the convention or of the domestic laws of the contracting states concerning taxes covered by the convention, in so far as the taxation there under is not contrary to the convention, in particular for the prevention of fraud or evasion of such taxes.”

Apart from invoking the bilateral treaty, the FBR’s proposal is based on various conventions of the United Nations, according to which, member states could not become or prove to be safe havens for three types of laundered money: that which is generated through illicit drug trafficking, money from tax evasion and money from malpractices and corruption.

Although all the money invested by Pakistanis in the Dubai real estate market is not illegal or laundered, the official insisted that a substantial amount had been siphoned off or transferred through illegal sources and is unaccounted for in Pakistan.

The official said the government should immediately invoke the treaty so that billions could be recovered in income tax (direct tax), or about 30 per cent of the invested amount, through various sections of the Income Tax Ordinance 2001.

However, the official suggested that the government should give amnesty to those Pakistani investors in Dubai real estate who would bring the laundered money back to the country through proper banking channels, and the law has the provision about it under section 111 (4) of the Income Tax Ordinance 2001.

This would greatly help the country improve its fast-depleting foreign exchange reserves, he said, adding that strong political will was needed to take such a measure because most of the laundered money belonged to politicians, bureaucrats, businessmen, industrialists, feudal lords and illicit drug and arms traffickers.

Responding to a question, the FBR official said the allegedly laundered money was huge and it was difficult to evaluate its real size.