A RAID by the tax authorities on an ‘investment exhibition’ being held in Karachi shows that the government might be getting serious about netting some of the big fish allegedly engaged in repatriating tax-evaded wealth to foreign destinations.

The raid targeted an exhibition held by a property developer in the Gulf selling luxury accommodation.

The Federal Board of Revenue took into possession a record of those people who had put money down, and questioned company officials about the nature of their business, record-keeping of transactions with their clientele, as well as the channels used by them to remit the funds they gathered.

Know more: FBR raids ‘illegal’ investment exhibition

Lately, a large and highly visible marketing campaign has been in progress here, offering attractive opportunities to invest in property abroad, usually a sign that capital flight is under way — although it should be clarified that not all the money that goes into property markets abroad is necessarily tainted.

However, in this case the authorities have taken note and appear to be following it up with action.

This is a positive sign, but it must also be remembered that a vast system to facilitate capital flight and round-trip tax-evaded wealth has been consciously built over the decades since the country’s opening up began in the early 1990s.

The system includes a no-questions-asked policy on the source of funds for foreign remittances, opportunities to under-invoice imports, as well as facilitation provided to ‘foreign investors’ in the stock markets.

A vast undocumented economy has grown under the umbrella of these protections, which is hampering the revenue-generating effort of the state in important ways. It is good to see the government getting serious about documenting some of the transactions that have mushroomed under this umbrella. But punitive measures alone will not be enough.

They must be backed up by efforts to credibly close off all implied whitener schemes, remove the clauses from the relevant tax legislation that grant immunity to certain categories of inflows from scrutiny, as well as an unbiased pursuit of the big fish that swim in these waters.

In the days to come, the government’s seriousness of purpose in pursuing this line of action will be revealed once those netted in the raid begin using their contacts to obtain relief. The government must show resolve at that time to not only continue its actions but also widen the scope of its efforts.

Published in Dawn, May 27th, 2015

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