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Dealing with the challenge of offshore tax evasion


Dealing with the challenge of offshore tax evasion

Bilal Hassan

In Pakistan, income is taxed on the basis of source. A non-resident person is taxed only to the extent of Pakistan-sourced income, and is neither required to pay tax on foreign-sourced income nor does he need to make disclosure of assets held abroad. Tax residence status in Pakistan is determined on the basis of physical stay of 183 days or more in a tax year. The resident Pakistanis have been involved in offshore tax evasion as residents in many other countries. Significant amounts of capital continue to flow from Pakistan to other countries through offshore companies located in tax havens, e.g. Panama, Bahamas, British Virgin Island, Seychelles, Samoa, Mauritius, Niue, Jersey and Anguilla. Because income earned in Pakistan, whether taxable or not, can be officially converted into foreign currency and remitted out of the country, contrary to the provisions of foreign exchange laws. The tax havens disclosed through Panama Leaks showed that there were a total 270 of entities which were owned by 444 individuals from Pakistan.

After actively engaging in outbound investment through offshore companies for many years, resident Pakistanis have stashed large amounts of earnings in offshore bank accounts. According to an estimate, Pakistani nationals have more than 152,500 offshore bank accounts wherein a hefty amount of US$ 11 billion is deposited. It is believed that more than half the earnings stashed in the offshore accounts are undeclared and are, hence, untaxed earnings. Moreover, the volume of hidden assets of Pakistani nationals in different foreign tax havens is estimated to be US$ 350 billion. The quantum of untaxed Pakistani wealth abroad can also be estimated from the fact that under the tax amnesty 2018, about 5,363 entities (individuals and companies) declared foreign assets worth Rs 1,003 billion, with major share of assets located in the United Arab Emirates (UAE).

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