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Tuesday, 12 April 2016
Panama Papers: Why Pakistan doesn’t care
It makes perfect sense for Pakistani businessmen to own assets in foreign countries through offshore companies.
After all, the Pakistani state confiscated their assets in the 1970s. Businessmen that owned banking, power, auto, insurance, petroleum, shipping and steel companies lost their assets overnight to the state in the name of nationalisation – a fancy name for the outright seizure of private property by the ruling elite.
The Panama Papers show family members of Prime Minister Nawaz Sharif own London properties via offshore companies. Setting aside the moral conundrum for a while, let’s get some facts straight. Sharif’s late father was a successful entrepreneur whose entire business was taken away by an ideology-driven regime of Zulfikar Ali Bhutto.
Later on, the Sharif family rebuilt its business empire, which became a repeated target of state harassment in the two subsequent governments of Bhutto’s daughter as well as the regime of General Musharraf. This makes it hardly surprising that his family members own some of their assets through offshore companies. While a strong case exists against the prime minister’s family owning foreign investments through shady companies, what about businessmen that do not hold political office? What makes them wary of the powers that be, as the era of socialism is, thankfully, over and democratic culture is taking root in Pakistan?
There are two major contenders for the title of the uncrowned king as for the country’s stock market. The first one, with major stakes in banking, brokerage and asset management, was forced to live in Dubai for many years under the last PPP government. Word had it that one of the most powerful political figures in the country demanded a ‘cut’ out of his business, which forced him into self-imposed exile.
Tables were turned with the ouster of the PPP from power in 2013. Now it was the turn of the other stock market guru to face harassment. He is now hounded by bureaucrats day and night for alleged corruption while his CEO has been languishing in jail for over four months on frivolous charges.
A state whose rulers have no qualms in hounding businessmen in the name of ideology or alleged corruption should think twice before asking them to bring their offshore assets back. Once bitten, twice shy.
Why people are not appalled when they should be
This argument makes sense – in fact, a little too much of it – and within it lies its counter.
There is no doubt that Pakistan suffers from a variety of issues and tax evasion forms a major chunk of the rotten pie. When democratic leaders stash away their cash in offshore companies, the argument ‘so what if others do the same’ makes for a pretty good reply — barring the fallacy that comes along with it.
What would happen if everyone started doing the same? There is already a booming informal economy in the country and a poverty line that should embarrass the government as well as those living well above it.
If the filthy rich have the option of going ‘offshore’, then the slightly less rich should have a localised version of it as well. And they do. It is called the Federal Board of Revenue (FBR).
Things have changed and so has the country’s revenue. But the increase has mostly come on the back of high tax rates and a slight conscious-awakening on part of the authorities and some taxpayers.
Nevertheless, it is safe to say that tax authorities and some of the officials have done what Mossack Fonseca does so openly. The FBR’s subtle help and general lethargic attitude aided several less-than-filthy rich evade taxes at a local level for a very long time — this is why Panama seems a bit inconvenient when there is a similar option available within the country.
When there are notoriously famous examples of people looking at every possible location on the world map to save money, the argument that others need to pay their tax loses a lot of its shine. People are right when they say that the Panama Papers present more than just a legal issue. It threatens to dissolve the very fabric of a moral and ethical society where the argument – that the rich get whatever they want – is reinforced in a rather cruel manner.
But one of the reasons why public outcry has not been as much as in Iceland or elsewhere for that matter is because the public’s the same. The rulers come from within the ruled and represent the kind of society they live in.
Tax evasion is just not a big deal because whoever gets a chance has grabbed it with both hands. Those who pay their taxes are not nearly powerful enough. This is what’s wrong with Pakistan.
What is an offshore company?
Offshore companies are banks, corporations, investments and deposits located outside one’s national boundaries. Though a company could legally move offshore to avoid tax or enjoy relaxed regulations, they can also be used for illicit purposes like money laundering or tax evasion.
Some people, for example, need a bank that specialises in asset protection. Others require transaction-intensive business accounts. Others may need a very low deposit minimum, while other high net worth individuals may be looking for safe private banking options.
What entices most people to invest in offshore companies is the fact that apart from being a legal procedure it promises secrecy. The ill-gotten gains can be easily transferred abroad with no fear of confiscation.
Offshore accounts are protected by privacy laws therefore, they do not permit anyone to learn how much money one has in an account and protects the assets from being seized.
Multinational corporations have also been used to avoid paying taxes for years via practice called inversions. Major US firms have structured merger deals to reduce tax liabilities. They change official addresses and pay lower taxes on profits they shift offshore.
Though legal, the offshore accounts give the advantage of reduced transparency, which leads to illegal activities. This is why millions of terrorists and drug smugglers tend to use them to raise and move funds conveniently and to conceal sources of funds and ownership.
kazim alam is a staff correspondent / bilal memon is the business editor
Published in The Express Tribune, April 11th, 2016.