ISLAMABAD: An investment exhibition, inviting the crème de la crème of society to put their money in real estate opportunities in the Middle East, does not sound like the kind of place the government may want to raid. But the Federal Board of Revenue (FBR) – which has been worried by the flight of untaxed capital from the country for quite some time now – is no longer taking any chances.

In a raid conducted last week, a team from the FBR’s Directorate of Intelligence and Investigation (I&I) for inland revenue confiscated laptops, iPads, tablets and cellphones from representatives of the real estate development firm hosting the exhibition. The firm’s staff led by a Kenyan national were quizzed but they did not provide satisfactory answers.

Take a look: Capital flight to Gulf states worries govt

According to official documents seen by Dawn, the company was allegedly providing Pakistani citizens the opportunity to transfer untaxed money overseas, ostensibly for laundering purposes. According to the documents, FBR has obtained the names of around 50 people who approached the firm. “The [confiscated] articles will be scrutinised to retrieve data of [those]... who wanted to send their black money out of Pakistan,” an official from the FBR’s tax intelligence directorate told Dawn on condition of anonymity.

Officials privy to the investigation told Dawn that the firm’s representatives were asked whether they had any system to verify that the money they were receiving was legitimate or ill-gotten. They also asked the firm’s people to explain how they were sending the money to their company in the UAE. However, on both counts, they did not receive any satisfactory answers.

UAE accused of treaty violation; officials say govt unwilling to go after ‘rich’ people

The raid was carried out under Section 175 of the Income Tax Ordinance, 2001, which empowers tax officers to enter and search any premises at any time, without prior notice. Tax officials enjoy sweeping powers to access any premises, accounts, documents or computers at any time and are authorised to impound any accounts or documents and retain them for as long as may be necessary for prosecution purposes.

According to the tax official, the real estate development firm was not registered with the Securities and Exchange Commission of Pakistan (SECP), which was a mandatory requirement under the Companies Ordinance, 1984; nor did the company have a National Tax Number (NTN), another prerequisite for all resident or non-resident companies operating in Pakistan.

Confirming the raid, FBR spokesman Shahid Hussain Asad said that the department had made several raids on similar attempts to entice well-to-do Pakistanis to invest in the Middle East. He said that FBR was conducting a successful operation that is helping to guard against the outflow of foreign exchange from the country.

Referring to the 50 people whose records had been obtained from the firm by investigators, the spokesman said that FBR was working to collect details on those individuals and sifting through their tax profiles.

Official complacency?

This is not the first time FBR has suspected a Middle Eastern firm of facilitating the flight of capital from Pakistan. Earlier this year, officials from the I&I directorate obtained details of nearly 660 Pakistanis who were allegedly trying to launder ill-gotten money through investments in real-estate in the gulf.

A tax official, on condition of anonymity, told Dawn that even though they had “enough data and information about such ‘rich’ people since March this year, the government did not appear to be willing to go after them”.

According to him, I&I investigators have all the details they needed, such as names, contact numbers and addresses and other personal details, to initiate probes into their tax profiles. However, there appeared to be no movement on this front.

Explaining why their hands were tied, the official said that people of such standing did not use overtly illegal means, such as hawala-hundi to send their money abroad. Checking that illegal trade, he said, was the purview of the Federal Investigation Agency (FIA), which had failed to take any substantive action against those involved in money smuggling and related illegal activities.

According to data recently released by Dubai Land Department, Pakistani nationals made real estate transactions to the tune of $379 million between January and March, 2015. Pakistanis are also said to have purchased properties worth over $4.3 billion in 2013 and 2014 in Dubai. However, according to the land department, these numbers might also include expatriate Pakistanis.

Under the treaty on Avoidance of Double Taxation and Prevention of Fiscal Evasion, which exists between Pakistan and UAE since 1994, both governments are bound to share information. However, the FBR spokesman told Dawn, “We have approached the UAE government 26 times earlier to share data with us particularly about those who have invested in real estate projects,” he said. However, he said, there had been no response or cooperation from the UAE side on this front.

Published in Dawn, May 26th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play