FBR’s Int’l Wing Unable To Recover Taxes, Eagerly Leaking Information Against Justice Isa

Naya Daur Media Exclusive

Despite the policy announcements, Pakistan’s Federal Board of Revenue (FBR) has not met the target of recovering billions as taxes from 57,450 offshore accounts of Pakistanis reportedly worth USD 7-8 billion. In 2019, three Commissionerates in Islamabad, Lahore and Karachi were set up to seek information regarding these offshore accounts but their performance during the last two years has been dismal, to say the least.

The existence of these accounts came into the knowledge of Pakistani authorities in 2018 when Organisation for Economic Co-operation and Development (OECD) under its Automatic Exchange of Information (AEOI) initiative released the first batch of information about thousands of bank accounts opened in these countries by Pakistani residents. Pakistan became the 104th jurisdiction to join the most powerful multilateral instrument against offshore tax evasion and avoidance in September 2016 and signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit (BEPS) in June 2017 at OECD Secretariat in Paris.

However, almost a year after the three zones were set up in 2019, they had only contacted 885 bank account holders by September 2020 and recovered a meagre Rs 3.75 million, while the estimated amount recoverable was around 2 billion US dollars. Although an Express Tribune news story, published in April 2021, reported the total recovery as Rs 4.6 billion, or 30 million dollars, from 1150 accounts, not only is it way short of the target but Naya Daur Media (NDM) sources report that almost 90 percent of this amount was voluntarily submitted under the tax amnesty scheme and that the commissionerates had little role in securing the amount.

The majority of cases seems to have been disposed without passing any formal orders or following the due procedure.

An FBR insider told NDM that repeated requests to explain the slow pace of recoveries were apparently not taken seriously by the said commissionerates, and that most of the replies given, were ‘vague/irrelevant, unsubstantiated and not in accordance with the law.’

“The responsibility lied with the International Taxes Wing, headed by Dr Ashfaq Ahmed, since these commissionerates were working under the International Taxes Directorate and during his tenure, the list was first shared with Pakistani authorities. He is also the Member (Inland Revenue – Operations) of the FBR now,” the insider added.

The amount of recoverable taxes from these bank accounts was approximately 30% of the total amount. This could be well above 2 billion US dollars. “Even if one-fourth of the cases were genuine, the amount recoverable would be in hundreds of millions of dollars”, the insider added.

In their January 7 article, Huzaima Bukhari and Dr Ikramul Haq revealed that “…Director General of Directorate of International Taxes of the FBR and now Member Operations Internal Revenue Service (IRS), FBR, told the Standing Committee of National Assembly on November 7, 2019 … the total tax collection in 325 cases against $5.5 billion worth of foreign assets caught in the OECD web was only Rs. 5.6 billion or 0.64% of the traced assets, indeed a startling revelation before the House Committee.”

“The tall claims of premier Imran Khan, especially of reopening the cases of beneficiaries of asset whitening scheme of PMLN were exposed by Mohammad Ashfaq of FBR who told the House Committee of National Assembly that out of 191 persons who availed the 2018 and 2019 asset whitening schemes, tax received by FBR was only Rs. 4.6 billion against declared assets of Rs. 94.2 billion. Thus these 191 people paid on average 4.9% of the value of assets in taxes!! It was conceded by Chairman FBR that they could have recovered 70% of the assets,” they added.

The source says this is not an ordinary case of negligence. “The former FBR Chairperson Nausheen Amjad Javaid had once informed DG, Directorate of International Taxes that she had received complaints about private people contacting bank account holders and offering them to ‘settle’ the cases in exchange for bribes. She pointed out many of the cases. Nausheen told him he needed to keep a strict check on his staff members. Few days later, the lady was removed as chairperson”, the source said. Dr Nausheen Amjad declined to comment.

A tax expert who’s worked closely with the FBR confirmed while talking to Naya Daur Media that some FBR officers not only contacted the account holders offering them to remove their names from the list in return for bribes, but some of them even called those who had already declared their assets under the amnesty scheme to blackmail them.

Confidentiality breach in Justice Qazi Faez Isa’s case

Interestingly, the International Taxes Wing was also allegedly involved in the reference filed against Justice Qazi Faez Isa. Former FIA Director General (DG) Bashir Memon alleged in a recent interview that he had warned the DG against becoming part of a conspiracy against a sitting judge of the Supreme Court, but he discarded the advice.

The International Taxes Directorate had access to Mrs Sarina Isa’s bank details too. The confidentiality of the bank account holders’ details is of key importance according to AEOI.

If Mrs Sarina Isa’s account details were extracted through this channel, it was apparently in clear breach of the MLI signed by Pakistan government. Pakistan is signatory to OECD’s Multilateral Instrument, the Article 21 of which bars disclosure of information received through this system. During the course of the hearing of the presidential reference against Justice Qazi Faez Isa, Mrs Sarina Isa repeatedly accused DG, Directorate of International Taxes of sharing these details with PM Imran Khan and his Adviser on Accountability and Interior (with the status of Federal Minister) Mirza Shahzad Akbar.

This clause is reinforced by The Standard for Automatic Exchange of Financial Information in Tax Matters – Implementation Handbook (Second Edition) on Page-52. The paragraph 107 listed under ‘Breaches of Confidentiality’ clearly states that “The Standard also outlines the required domestic framework in relation to breaches of confidentiality, including penalties or sanctions for improper disclosure and investigatory procedures to be triggered if a breach takes place.”

In her letter addressed to Dr Zulfiqar Ahmed dated July 21, 2020, Sarina Isa also wrote: “Neither the unlawful ARU nor its secretary had the authority to seek and obtain confidential protected information, and in doing so also violated sections 198 and 216 of the Income Tax Ordinance and have made themselves liable for prosecution thereunder, in respect whereof the Petitioner reserves the rights.” In that letter, she proceeded to further allege: “The Secretary ARU wrote letter dated 8 May 2019 to a Member of the ARU to a member of the ARU, namely Mr [Ashfaq] Ahmed, to do the needful. Mr Ahmed jumped to play his part. He wrote to Mirza Shahzad Akbar letter dated 10 May 2019. This letter is written on the false assumption that the requisite approval had been granted by the Chairman FBR. Mr Ahmed also took it upon himself to assign, “to the relevant field formation i.e. Commissioner IRS, International Taxes/AEOI Zone, Islamabad, for cognizance, analysis and report under law.”

This view was upheld by Justice Yahya Afridi in his dissenting judgement on Justice Isa’s reference. In paragraph 84, Justice Afridi writes:

“… it is critical (for the exception in Section 216(3)(p) to be attracted) that the ‘investigation’ is duly sanctioned and is being carried out in accordance with law at the time that the clause is invoked. If this is not so then clause (p) can have no application and the information cannot be disclosed”

In paragraph 85, he writes:

“As far as Mrs. Isa is concerned … unless tax information is sought in respect of the public servant no such information of any taxpayer can be accessed. Hence, the exception under Section 216(3)(p) of the Ordinance also applies to Mrs. Isa. However, as already noted … the jurisdictional prerequisites for carrying out an investigation against the petitioner did not exist. It therefore follows that the request made by the ARU for the tax information and the release of such information by the tax authorities did not fall within the exception contained in clause (p). As a result, the disclosure was contrary to law.”

“As far as I know him, Dr Ashfaq Ahmed enjoys a good reputation, but this case is political, and it seems he was made a part of it,” a former officer of the Income Tax department said while talking anonymously to NDM.

International Taxes DG was the only person with access to Mrs Sarina Isa’s information

Naya Daur Media has learned through its sources that the chairman FBR could be the only person other than DG International Taxes to have access to this data. “We’ve tried to make this system as fool proof as possible. There’s a server which contains all this data and even the three commissioners in Islamabad, Lahore and Karachi couldn’t have accessed the details of a person of their choice,” a highly placed inside source informed NDM.

The server is located in a room that could only be unlocked through eyeball recognition. “Again, the system only recognised two eyeballs. The chairman’s and the DG of Directorate of International Taxes’s.”

Despite repeated attempts by NDM to contact DG of International Taxes Directorate, the officer refused to comment. He was requested to comment on low tax recoveries from the offshore accounts, alleged violation of the MLI signed with OECD and on Bashir Memon’s allegations levelled against him.

Will there be an inquiry?

It is obviously a cause of concern that out of thousands of accounts with billions of dollars stashed abroad, the FBR was merely able to collect a minute – less than 1 percent – amount of the taxes recoverable in almost two years. Furthermore, accusations of using confidential data for political purposes makes this even more problematic. But those who know the system are hopeless about its capacity to bring those responsible to the book.

A senior tax expert talking to Naya Daur Media on the condition of anonymity said that Pakistan needs an agency like UK’s National Crime Agency, which is completely free of political influence. “These are serious allegations and there are credible reports now suggesting that the data was used even to malign and remove a sitting judge of the Supreme Court. What can we expect from such a system where the people responsible for upholding the principles of transparency are the ones violating it? We need a body that is free of politics, and those in charge are not interested in developing anything of the sort”, they said.