Our curious paradox

The prime minister of Pakistan, in his second address to the nation on April 22, 2016 on the allegations arising from the Panama Leaks, has made it clear that he will not resign, unless held guilty by an inquiry commission and that the “onus is on the adversaries to prove that [he] concealed assets”.

The terms of reference for the inquiry commission are so broad that it would require years to conduct and finalise the probe. This exercise, if at all it takes place, will confirm that all departments established to tackle the issue are either dormant or have become redundant. The real issue is the acceptance of corruption as a way of life.

It is a curious paradox that, while funds for industrial and business growth and public benefit are scarce in Pakistan, there is a colossal amount of unaccounted for, untaxed and hidden money in circulation. What makes the situation more curious and painful is the fact that successive governments, civil and military alike, have been giving this black money legal cover: permanent immunity is available under Sections 5 and 9 of the Protection of Economic Reforms Act, 1992 and Section 111(4) of the Income Tax Ordinance, 2001.

What is more tragic is that this social evil, inherent in our tax system, is compounded, as it necessitates a greater tax burden on the law-abiding citizens. The most crucial problem faced by the Federal Board of Revenue (FBR) is that of devising astute and stringent measures to curb tax evasion and money laundering, so that the burden of taxes can be distributed fairly and justly amongst the people. Honest taxpayers need to be safeguarded, as they are becoming disillusioned day by day because of the fact that the tax evaders are paying nothing under state patronage.

Pakistan is facing multiple challenges on the economic front: monstrous borrowing to meet its day-to-day expenses and a lack of resources for developmental policies, to meet the trade and fiscal deficits, for balance of payments, and what not.

One of the factors responsible for the failure in revenue generation is the speed with which black money is generated every day. In the context of the grave challenges of terrorism, money-laundering operations that fund criminals and the ever-growing black economy, which according to independent experts is about three times the documented economy, there is an urgent need to launch asset-seizure legislature, rather than giving legal cover to tax evaders.

It is unfortunate that a large number of ‘benami accounts’ exist. The sources of the deposits are not declared to the FBR, even for the accounts that are registered under personal names. We cannot tap the real revenue potential unless stringent measures are taken to combat tax evasion and money laundering. Elimination of the parallel economy along with proper documentation can broaden the tax base, besides purging society of the black money that cripples and corrupts all the state structures.

The huge amount of illegal and untaxed money is a lethal weapon in the hands of the mafias that control the economy and influence politics. A study by the State Bank of Pakistan (SBP), ‘The Size of Informal Economy in Pakistan’, estimates that the total size of the informal economy is around 30 percent of the total economy. That means that some Rs900 billion is generated each year in Pakistan from the parallel (untaxed) economy. The black money generated through organised criminal activities – rent-seeking, smuggling and the narcotics trade – is about Rs400 billion, which does not appearing in the study of the SBP but is documented in ‘Pakistan: Enigma of Taxation’, published in 2011 by Lambert Academic Publishing.

When the presence of so much black money is so apparent, why its criminal sources are not revealed and offenders not punished is baffling to honest citizens. They wonder whether it is because of a lack of political will, rampant corruption, the collusion of tax dodgers and the tax administrators, the ineffectiveness of the political system and the laws or the pervasive stubborn indifference of citizens towards their duties. Obviously, the commission of the Supreme Court will also not be able to find the answers to these questions. These are purely political issues.

The recurrence of amnesty schemes and instruments to legalise black money shows that the state has conceded to the failure of its tax machinery. The nation has become addicted to easy money and such schemes/instruments have become routine for them. Those hooked on ill-gotten income know for certain that after every two or three years, there will be an amnesty scheme, giving them a chance to legalise their income/assets by paying far less than what they would have been required to pay under the normal tax regime. It is tragic when the entire state apparatus is subservient to those who blatantly hide their income and wealth. It is an ugly joke on those who are paying their taxes honestly, and at much higher rates than those offered to the tax evaders.

One of the worst consequences of black money and tax evasion is their pernicious effect on the moral fabric of society. They compromise integrity and place a premium on the vulgar and ostentatious display of wealth. This shatters the faith of the common man in the dignity of honest labour and virtuous living.

There is a need for a wider plan to purge the country of corruption once for all. Firmness, consistency and steadfastness must be shown to apprehend the money launderers, terrorists and tax evaders. Judicial and inquiry commissions will not eradicate these maladies.

The writer is an advocate of the Supreme Court and adjunct faculty at LUMS.

Email: ikram@huzaimaikram.com

Twitter: @drikramulhaq