ISLAMABAD: In a major development, the Federal Board of Revenue issued notices to over 2,785 wealthy Pakistanis who have allegedly laundered Rs102 billion during the outgoing fiscal year by describing the money as “gift”.

An official told Dawn on Tuesday that these individuals had been asked to explain the sources of their income.

Under the existing laws, gifts are exempted from taxes and a large number of such individuals with high net worth are using the option as safe means of transferring income, assets and wealth without contributing to the national revenue.

When contacted, newly appointed Director General of Intelligence and Investigation Shad Mohammad confirmed the issuance of notices to these people who received hefty gifts from various quarters.

FBR issues notices to 2,785 wealthy people to determine their sources of income

In the first stage, he said the source of income was not clear from cross-verification of their income tax returns. “We are closely coordinating with the regional tax offices (RTOs) for enforcement of these notices.”

The RTOs will scrutinise the cases to determine whether or not these expensive gifts came from legitimate sources.

The cases involving money laundering through “gift back arrangements” were unearthed during the scrutiny of tax returns filed by the wealthy individuals last year. It was found that income was declared in many returns, but taxes paid on the income were nominal. The wealth statements of the individuals showed that their net assets were running into hundreds of millions of rupees, and even higher in some cases.

The anti-money laundering cell of Intelligence and Investigation, Inland Revenue, has launched investigation against the identified people who put assets worth millions of rupees in the gift category while filing their returns, according to the official. Data collected by the cell revealed that 2,785 rich individuals declared receipt of gifts worth Rs102bn in their wealth statements in the tax year 2016.

In three of the cases, the individuals declared gifts worth Rs1bn and above, with the biggest amount of gift received being Rs1.7bn. At least eight individuals declared gifts worth between Rs1bn and Rs500 million.

In the third category, 97 individuals declared gifts worth between Rs500m and Rs200m. Likewise, 97 people declared having received gifts worth between Rs200m and Rs100m and 280 individuals between Rs100m and Rs50m in their wealth statements. A total of 2,348 people declared having received gifts worth between Rs50m and Rs10m.

In cases where it is found that a “gift back arrangement” has been employed with the intention of evading tax, the assets of the individuals concerned can be confiscated under the Anti-Money Laundering Act 2010 and criminal references filed against them in the Special Court of Customs and Taxation.

Laundering the proceeds of tax evasion through schemes such as “gift back arrangements” are liable to punishment with rigorous imprisonment of up to 10 years, along with heavy fines as well as forfeiture of the properties involved.

Published in Dawn, July 26th, 2017