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Why Accountability Fails: Will Fail By Syed Shabbar Zaidi The Prime Minister Imran Khan admitted recently that the PTI government has not been able to conduct accountability, so far, in the desired and expected manner. This is tragic for Pakistan. Nevertheless, it was not unexpected for me for the reasons given in the following paragraphs of this article. It is highly important for Pakistan as a state to understand that Pakistan is faced with state-sponsored legally protected modes of corruption. Politicians and media, without understanding the ground realities and legal system give hope to the simple people of Pakistan that there will be some sort of accountability for the corrupt people and for obvious reasons they miserably fail which creates hopelessness about the prevalence of rule of law in this country. This has happened in this country repeatedly since 1947 ( we have EBDO way back in the 1950s) and recent examples are accountability drives undertaken by Senator Saifur Rehman against the PPP government, General Pervez Musharraf and General Amjad against politicians and businessmen at large in the 2000s and now by the PTI government against the past political governments. In my personal view, at least in the last two cases, there cannot be any question on the sincerity of efforts. However, the failure and delay is obvious and for valid reasons. This requires a proper understanding of the prevalent financial and taxation system of Pakistan which has been designed by vested interests in a manner that there can never be proper accountability against corruption. It is the den of mischief duly protected by strong trip wires which start alarming whenever there is an intruder in the system to correct the malfeasance. This subject which is completely non-political has been discussed in the following paragraphs. Pakistan has not been well-governed since 1948. However it is the observation and belief of a common Pakistani that the rule from 1970 to 2021 is full of corruption and those involved, irrespective of political affiliations and status, are to be made accountable before the people. The organised legally protected corruption accelerated after 1992. This was the result due to which Pakistani rupee which had a one rupee margin against the Indian rupee in 1995 (Pakistan 32: India 31) is now 178 against 75 Indian. The accountability of people involved in financial corruption is a very difficult and complex task. Throughout the world, the only law which can bring a delinquent person within the clutches of law is the income tax law. The Sicilian Mafia chief could not be brought to justice under any law, even under the well-established law of the United States of America, except income tax laws and he was convicted under that statute. The simple tax question universally acceptable is the identification of sources of money used for lavish living. This is a universal principle that cannot be changed. Why this universal principle cannot be applied in Pakistan and what has been done in Pakistan which has made accountability almost impossible in Pakistan is explained in the following paragraphs. In my opinion, those who designed the taxation system in Pakistan after 1992 have comprehensively studied the case of the Sicilian Mafia chief with respect to the fact that they can be caught on account of their unexplainable sources of funds used for lavish living. The only manner through which any kind of financial crime can be made accountable is the examination of means of living. Now in this post-1990 Pakistan, this question has been erased from our tax dictionary. Therefore whilst designing the absolutely intellectually corrupt system which became prevalent after the 1990’s the question of explaining the sources of ‘living beyond means’ has been made irrelevant. The upfront conclusion is that Pakistan has been utterly destroyed by way of ‘state-sponsored corruption’ through legislations in the fields of income tax and foreign exchange which allowed everything illegal in the guise of legally permitted manners. This is exactly what I stated before the Supreme Court as amicus curiae in the PanamaGate scandal case. [Supreme Court Sou-moto case 2 of 2018]. This discussion is not being made to repeat history or to create further hopelessness. The only purpose is to tell the public at large that those who understand the system, like me, are fully aware of the reasons why accountability is failing and it is our duty not to create unnecessary hopes. Our emphasis should be on corrections for the future as almost all the wrong practices are being continued. This is quite apparent from the tax directory of parliamentarians for 2019 the period of PTI government. Under the modern world if the rulers are corrupt and they want to avoid corruption then the first thing they do is to destroy the taxation system. This has been done in Pakistan in a very discrete and organized manner and our people and also the courts could not find and distinguish the fine line between ‘simplicity’ in the taxation system and ‘non-documentation’. In the name of creating simplicity, everything else in the system has been destroyed. There is no other example of this state-sponsored corruption in the world. It is my personal experience as President of the South Asian Federation of Accountants that those who understand the ABC of taxation system laugh when they see the applicable tax code for Pakistan for major sectors of the economy. This system has been intentionally designed to kill documentation and to avoid the possibility of a question of ‘living beyond means. If we want to understand the system of state-sponsored corruption, in summary, then we require a simple understanding of the following three laws enacted by the parliaments of Pakistan and approved wholeheartedly by the then judiciary of Pakistan. These laws were inherently wrong, purposefully fabricated against the common man and were part of a joint venture of corrupt politicians against the common man of Pakistan. These people are still sitting in the parliament and sit on both treasury and other benches of the parliament. The drama of national destruction staged after 1992, scene by scene, is as under
1. The first scene is the introduction of the ‘Presumptive Tax Regime’ in the 1990s by the then Nawaz Sharif government. Under that law, the universal principles of taxation of income were raped. Under this system which is not applicable anywhere else in the world, a particular sum not being the ‘income’ was treated as income and that amount was treated as a final discharge of tax liability. It in fact means that there is no ‘direct tax’ on that income. There is only an indirect tax in the shape of withholding. Pakistan may be the only country where direct tax has been abolished by the law of parliament. This is totally criminal. Through this system, the link between the ‘income’ and ‘tax liability was broken. Accordingly, the inquiry about sources of income became impossible. For example, I have to pay Rs 6 on the Rs 100 of the value of goods imported by me for trading. The state is not informed and concerned whether I have made Rs 50 as ‘profit’ on that transaction or has made a ‘loss’ of Rs 10 or whatever it is. Under this system, there cannot be any identification of any source of income or assets. For example, I can have assets worth billions and on inquiry, I can easily say that this billion is the result of a business that is under a presumptive tax regime or a gift from my son or brother engaged in a business subject to presumptive tax. The best example is the export business of Pakistan worth USD over 25 billion. If I had paid the withholding then no other question can be asked. In simple terms, the amount paid as tax is the cost of laundering money if I am interested in doing so. The Institute of Chartered Accountants where I was the President strongly resisted this law however we were unsuccessful. Subsequently, this matter was taken to the Supreme Court, but like any other case, such as a Moulvi Tamizuddin Khan case the ‘law of necessity was applied and the Bench headed by honourable Justice (Late) Ajmal Mian in the case of Elahi Cotton Mills Limited [1997 PTD 1555] case validated the most absurd law in the history of taxation. Now the question is whether parliament or the judiciary is responsible for this crime. In my view, both are equally responsible and simultaneous responsibility rests with the professional community, including us, who accepted the most dangerous enactment made in the country. When I became the Chairman Federal Board of Revenue in 2019 through the Finance Act, 2019 I tried my best to undo the mistake and substantial heads were taken out of the presumptive tax regime. But remaining continued due to political expediency. Nevertheless, in the intervening period, the damage had been done and Pakistan as a country had no record of total income earned by its businesses from 1990 to 2019. This is in trillions of rupees. Now the question is whether any accountability can be done with respect to corruption money that had been and still can be legally disguised under the income subject to presumptive tax. The answer is negative. Very few people realize the intensity of this error which has been made in the guise of simplification of laws. It is a 100% case of intellectual corruption of the person who suggested and drafted that law, those who enacted it and those who declared it as legal whilst sitting on the honourable benches. It has been repeatedly explained by me that money laundering has been made legal in Pakistan after 1990. The anti-money laws are effectively toothless for funds so laundered under a presumptive tax system. The conclusion of this part is that there cannot be any accountability for corruption money earned as it is in the pool of unrecorded business income which was subject to presumptive tax during the period 1990 to 2021. The amount is in trillions. So it is very easy to include one or two trillion rupees of corruption money in this kitty especially when the politicians and their families are both in business and politics. This is a joint venture. Under the present Pakistani system it is preferable for political families to be in business so that there is a legally permissible manner of placing the corruption money in the record as income subject to presumptive tax. In this situation, I reiterate that before embarking upon the accountability for the period 1990 to 2021 there has to be a proper understanding of the taxation system that prevailed in the country. There is an unexplained pool of trillions of rupees out of which billions cannot be taken as corrupt money. Almost 80 to 90 per cent of houses in DHA in Lahore do not appear from any explained source. This is an undeniable fact that requires a fundamental paradigm shift as discussed below.
2. Our corrupt people were not satisfied with the legally available laundered corruption money in Pakistan. They wanted the same outside Pakistan in dollars. In order to do the same the most notorious law in the history of foreign exchange laws of the world under the name ‘Protection of Economic Reform Act,1992’ (PERA) was introduced. This overarching law which placed all the foreign exchange regulations as contained in Foreign Exchange Regulations Act, 1947 virtually in the dust bin consisted of only one and a half pages. Our rulers were interested in simple and short laws. After the enactment of this law, two parallel foreign exchange regimes became operative in the country. In simple terms, the foreign exchange laws during that time operated in a hilarious manner. For example, if I wanted to send one million $ outside Pakistan for my genuine business or non-business purposes then it was virtually impossible to get permission which is required under Foreign Exchange Regulation Act, 1947. However, I can send ten million $ by purchasing the same from an exchange company by paying them in Rupees under PERA. Even that botheration was not required. The counters of exchange companies openly did ‘Hawala’ transactions for millions and millions. On a personal level, I am against restrictions on foreign exchange transactions however I am strongly against the system where I am not asked for the ‘sources’ of rupees that I want to send outside Pakistan. This law was specially introduced to take the money laundered by way of a presumptive tax regime and corrupt money outside Pakistan. In this case, also the Institute of Chartered Accountants of Pakistan strongly but unsuccessfully resisted. This absurd law was duly protected by the judiciary in the famous case of the full bench of Lahore High Court headed by Justice Sheikh Riaz Ahmad in the matter of Hudabiya Engineering (Private) Limited reported as 1998 PTD 34. This means that our courts allowed sending money outside Pakistan without any enquiry about the sources. This happened from 1992 to 2018. From 1992 to 2018 I wrote at least twenty articles that this joke should be stopped. Then there was the Panama Leaks. After which I wrote a book ‘Panama LeaksBlessing in Disguise’. When these matters came to the surface then in 2018 a partial correction was made in 2018 when PERA was made subservient to general foreign exchange regulation. But the damage had been done. In this connection, it is necessary to state that Mian Nawaz Sharif is not the only person responsible for this mess. General Musharraf totally endorsed this wrong policy of Mian Nawaz Sharif and in 2001 another strange law being ‘Protection of Foreign Currency Accounts Ordinance, 2001’ was enacted. PPP being a part of a joint venture supported the same in their tenure. Now the PTI came into power with the support of electives. The party in my view was not fully apprised of the tripwires which were laid down to support this intellectual legally supported corruption. The electives were no exception to the system. Now if some politicians, bureaucrats and retired people own substantial assets outside Pakistan then that is not a strange phenomenon for a person like me. The amount that has been sent outside Pakistan is over $ 120 million in these forty years. So if someone owns assets outside Pakistan in the shape of a flat near Hyde Park then the same may be legally protected under the system explained above. In 2018 and 2019 I advocated ‘Asset Declaration Schemes’ for such assets not to catch the persons or to bring the assets back. I said the same in the open court in the Supreme Court as amicus curiae attracting annoyance from then Chief Justice Mian Saqib Nisar. These laws were introduced for future asset records in Pakistan and to save these assets from confiscation by foreign authorities like the ‘Unexplained Wealth Order’ of UK. The mistake which Mian Nawaz Sharif made regarding the alleged assets outside Pakistan after the Panama Leaks was agreeing to produce a trail of money for acquiring foreign assets. There are legally permissible means to have such money outside Pakistan without providing the sources and trail therefore he was ill-advised by his advisors which led him to unanswerable issues. Notwithstanding the aforesaid discussion, accountability by Imran Khan is very easy if there is a genuine desire by the nation. If allowed, the state can ask all Pakistanis to disclose the amount of remittance made out of Pakistan by all individuals from 1992 to 2018 from their foreign currency account. The funds to acquire assets outside Pakistan by the family of a member of the judiciary have also been sent from a private foreign currency account. If sources are proved then there is no case. If we are serious and actually want to make people accountable then as a nation we should voluntarily disclose the amount we have sent outside Pakistan from the foreign currency account maintained in our name, the names of our spouses and dependent children. If that is done for the period 1992 to 2018 all corrupt politicians, bureaucrats, forces personnel, judges, professionals and businessmen, if any, will be exposed. It is a very easy step and it does not require NAB or FIA. As a nation, we would have to see whether or not we are ready for the same. I totally agree that there is legal protection however if we want to save the country we would have to swallow this bitter pill. In case if people are not by and large agreeable then everything about accountability will not have any concrete result. If so then we should correct for the future and leave the past. This is a question of equity, not the law.
3. The third scene of the drama is even more interesting. Money sent outside Pakistan was also required in Pakistan to the extent of the sum required to buy houses, properties, election expenses and lavish livings. The same was required to be the one ‘declared’ but not taxable. In order to do that a very strange and novel provision was introduced in the Income Tax laws by way of Section 111(4) of the Income Tax Ordinance, 2001. Under that provision, all money sent from abroad was made ‘immune’ from any inquiry about sources. My unknown relative may send me ten million $ for which no enquiry can be made if the amount is received by the State Bank of Pakistan. Known and unknown relatives and benefactors sent billions of rupees in Pakistan from 1992 to 2018. They were declared and treated as if these were taxed paid sums. Again the Institute of Chartered Accountants of Pakistan and I in my personal capacity unsuccessful voiced the discontinuation of perennial sources of money laundering. Nothing was taken into account however ultimately after the Panama Leaks a reasonable caveat has been placed in this section. Nevertheless, the result of this immunity between 1992 to 2021 was the availability of trillions of rupees in the economy of Pakistan which were untaxed. This black, grey or white money whatever it is called was again used to generate black money resultantly at present around 40% of GDP consist of the undocumented sector. This was all legal means to convert corruption and untaxed money into white money in the country or if desired retain it as grey money. Again in case if the nation is serious about accountability then it should ask all Pakistanis to voluntarily disclose how much money they have laundered/sent through the application of Section 111(4) of the Ordinance. It is simple accountability that does not require NAB or FIA. It requires political and state will on the matter. The aforesaid discussion may not be easily understood by people not acquainted with tax and foreign exchange laws. Accordingly, this has been explained in the form of simple illustrations as under In my article printed in this paperback in 2018 I termed these three provisions as ‘Unholy Triangle’ for legally permitted corruption which makes accountability a farce in this country. Now when we see the cases under investigation in NAB we find that in most of the cases they reflect funds received from abroad in the name of ‘Benami’ persons. Which are peons, chowkidars etc. This is Step 3 in our illustration. The problem that will arise when these cases will mature will be that prior to 2019 Benami transactions were legally permissible in Pakistan. It was only in 2018 these were made illegal. The fundamental question from a legal viewpoint that will occur whilst investigating these cases will be the charge against the recipient if he or she claims to be a Benami. In my opinion, the cases will be weak to prosecute. The gist of the discussion, as above, is to identify that those who did corruption from 1992 to 2018 were fully aware of the consequences that were supposed to arise after they were not in power. They foresaw the future and legally protected them in a manner that no accountability could be done. In this manner, the whole elite benefitted. The problem with the present government is not examining the cases in this context and conveying a sense that there will be a conviction in future. The failures being faced by the present government in the field of accountability are not on account of any incompetence. They are the result of strong trip wires placed by the earlier rulers by way of legal protections. This should be told to the people at large. However, the question that remains unanswered is whether the parliamentarians who are in power and in opposition are in any manner different from those who framed the laws as described above. The answer is negative. The tax directory of 2019 reveals that over 200 persons in parliament do not have any income other than the salary they receive from the government. In the past, the first step was making the wrong laws. Can there be any possibility of a proper enactment in future when the same people are sitting in the parliament with a different cloak? The answer is negative. The solution, therefore, lies in a complete change in the paradigm of national thinking on financial matters. If the nation is not ready to voluntarily disclose the funds transferred out of foreign currency account from 1992 to 2018, or the amount received out outside Pakistan claimed under section 111(4) then the hopes about accountability should be kept low or completely extinguished. I understand that there is no legal basis to do so and courts will have the right to stop the same if mandatorily required. The question for Imran Khan and PTI if they are ready for an overall probe is whether they support complete transparency for the past. In the manner proposed there will be no charge of selectivity. I reiterate that the only way to check the same is the inquiry about ‘living beyond means. To conclude the subject I state that Pakistan has been systematically and by design destroyed and corruption has been legally protected. Chances for unearthing the past are remote when there is an inherent desire to maintain the status quo by all parties and relevant people. My sincere advice is to save Pakistan from collapse and give hope to its young generation, otherwise, there will be undesirable consequences.
