Capital flight to Gulf states worries govt

By Mubarak Zeb Khan | 4/29/2015

ISLAMABAD: In order to check flight of capital, the country`s tax machinery is planning to reach out to authorities in the Gulf states to seek details of realestate investments by around 660 Pakistanis.

`Real estate in the Gulf has emerged as one of the strongest areas for capital flight from Pakistan,` a tax official told Dawn on Tuesday.

The issue was first raised by the Financial Monitoring Unit (FMU) of the government in a letter sent to the National Accountability Bureau (NAB), asking them to look into the issue.

A well-placed source in the Federal Board of Revenue (FBR) told Dawn that the FBR`s Directorate General of Intelligence and Investigation (I&I) constituted a team of tax experts to obtain a list of individuals who have invested in luxurious flats, apartments and other valuable properties in the Gulf states.

The team has already compiled the list, which will be shared with tax authorities in the United Arab Emirates and Saudi Arabia so the FBR can obtain details of the returns against their investments in real estate in those countries.

`We have collected data on over 660 people who are believed to have made huge investments in real estate and property in the Gulf states,` an official from the I&I directorate told Dawn.

According to official documents seen by Dawn, a preliminary investigation has revealed that 265 people from Karachi, 182 from Lahore, 106 from Rawalpindi and Islamabad and 15 from Peshawar have made investments in UAE real estate. The other 92 people on the list are from other cities of the country, with the bulk of them hailing from Hyderabad and Faisalabad.

Article 27 of the Avoidance Of Double Taxation Treaty And Prevention of Fiscal Evasion, which deals with `Exchange of Information` between the contracting states, can be invoked by making a formal request to the UA E government, asking for details of Pakistani nationals who have made investments in real estate on Emirati soil.

`The purpose of the investigation is to establish whether these people paid the necessary taxes on their money before transferring it to the Gulf for investments,` the tax official explained. `We are also collecting information about these people`s assets,` he said, adding that the I&I directorate also has the CNIC numbers of the people who made these investments, which will help the department ascertain other details about their assets in Pakistan.

He also said that the exact quantum of the capital that has left the country will only become clear after verification from the tax authorities of the Gulf states in question.

The I&I directorate has sent a summary to the FBR chairman, proposing three steps for coping with capital flight from Pakistan to the Gulf.

The summary proposes that the FMU, through the State Bank of Pakistan, move a proposal for placing restrictions or conditions on the transfer of funds through formal banking channels. As per the FMU report, there is no restriction on the transfer of money abroad through banking channels, such as foreign currency accounts.

The FMU recommended that the federal government review the SBP regulations regarding the transfer of foreign exchange. It was also recommended that FIA also be involved in the investigation because most of the money is transferred out of the country through illegal means such as hundihawala or is smuggled out.

Published in Dawn