ISLAMABAD: A sum of $15.25 billion was transferred abroad by individual account holders in Pakistan during the financial year 2016-17 through normal banking channels, while a substantial amount was transferred abroad under unauthorised and undocumented hundi and hawala mechanism.

This information was part of a report submitted to the Supreme Court by a 12-member committee of experts, headed by State Bank Governor Tariq Bajwa. The committee, which had been constituted on the orders of a three-judge SC bench headed by Chief Justice Saqib Nisar, was tasked to trace assets and bank accounts stashed abroad by Pakistani nationals.

The court initiated suo motu hearing of the matter pertaining to illegal transfer of money from Pakistan to other countries when it came to its notice that a large number of Pakistanis had neither disclosed the accounts they were maintaining in other countries nor paid taxes on the money in accordance with the law.

Court informed that Foreign Assets (Declaration and Repatriation) Ordinance 2018 promulgated after its March 26 order

In its report, the committee stated that both types of outflows — regular channel and hundi or hawala — had a huge impact on the stability of the country’s foreign exchange reserves and adversely affected the exchange rate of the Pakistani rupee. As a result, the report feared, the national economy had become vulnerable to pressure due to foreign currency obligations of the state. This trend could cause undue and disruptive inflation besides draining the exchequer of substantial amounts of tax, it stated.

The court earlier recalled that the committee had urged the federal government to announce a scheme for voluntary disclosure of foreign assets owned by Pakistanis, providing them an opportunity to declare or transfer foreign assets to Pakistan in lieu of payment of tax.

The SC was informed that after its March 26 order, the federal government promulgated the Foreign Assets (Declaration and Repatriation) Ordinance 2018. The significant feature of the act is the promised immunity from taxation and penal action in respect of undeclared foreign assets subject to payment of taxes etc.

The apex court said the government had made legislative amendments in the relevant laws for regulating the cash feeding of foreign currency accounts by restricting the privilege to tax filers only.

A regulatory check in cash movement of foreign currency above $100,000 within Pakistan had been imposed, the court said, adding the immunity from taxation of inward remittances under Section 111(4)(a) of the Income Tax Ordinance 2001 had been limited to a maximum $100,000 per annum.

It is acknowledged by the SBP governor and the committee members that the suo motu proceedings had encouraged the federal government to review its policy leading to the legislative and regulatory changes.

The apex court also acknowledged that it was not an expert in economic, fiscal or financial matters but was persuaded to initiate the suo motu proceedings amid grave public concern over the country’s declining foreign exchange reserves, exchange rate of rupee and the corresponding inflationary trend of imported essential commodities, and government’s indifference towards the unhindered outflows of valuable foreign exchange encouraged by immunities from scrutiny and taxation.

Thus, the proceedings were aimed at drawing attention of the federal legislative and regulatory bodies towards issues of national priority, the court said, adding that legislation on the subject was a good start to curtail misuse of privileges granted by the law and executive regulation.

Published in Dawn, June 23rd, 2018