I did two posts on the social media addressed to two different groups of friends namely 'Corporate Pakistan' and 'C100 Think Tank' on November 13 and 14, respectively. I will reproduce the same in my next article. These posts were for the members of these groups, however, on account of lack of privacy in this country these posts were shared across the country and outside Pakistan as well through circulation on Twitter and other platforms. In hindsight I am happy that these posts that were for a group of friends were shared widely. As far as I was concerned that was the end of it. However, subsequently PDM President, Maulana Fazlur Rehman, in one of his press statements completely misquoted me and stated that through these posts I had expressed some displeasure about Prime Minister Imran Khan. Without having the courtesy of confirming from me, he inadvertently relied on some fake post on the social media and maligned Imran Khan and me without any substance. I have no complaint against him as I cannot control the social media for such fake content, however, etiquette requires confirmation before issuing such comments. Under these circumstances I was forced to explain my position through my twitter message and two television interviews. In those interactions because of statements by politicians I stated that previously I was a friend of Imran Khan, however, after working for five months with him now I am his supporter and admirer. Imran Khan is the only person who has challenged the 'status quo' in this country and I am extremely sorry that I have not been able to directly be part of his team. My humble services are and will always remain available to Imran Khan in his endeavor to shake the status quo in this country. This is a preamble to state the facts. The purpose of this article is to discuss my assertion in the media interactions about the term I coined 'State Sponsored Corruption'.
The word 'phrase' which has been extensively quoted and referred from my posts is "State Sponsored Corruption". Opposition on account of their lack of understanding took it as blame on Imran Khan. They called it an 'FIR'. On the other hand, a lot of people admired and appreciated me for identifying the core message which I desired to convey through that post. If I complete the sentence it should be read as "State sponsored corruption in fiscal policies in Pakistan".
As explained in my interviews the word 'State' is not synonymous with the word 'Government'. State is the state of Pakistan with a written constitution. Government is a body which is assigned the task under the constitution to implement whatever is written in the constitution. Government is a body formed by the lower house of Parliament that is assigned the task of executing the functions enumerated in the constitution. These functions as per the decision of the Supreme Court of Pakistan in the case of Mustafa Impex are to be undertaken by the Cabinet. So it may be the Cabinet of Benazir Bhutto or Nawaz Sharif or Imran Khan. These are governments not the state. State is the entity they govern. Nevertheless when a particular government adopts a policy to be implemented in a certain manner by passing any legislation by majority of votes in parliament it becomes an act of the State. What I stated and now reiterate is that the State of Pakistan in the past 35 to 40 years has been suffering from State-sponsored corruption in fiscal policy matters. In other words, those in government passed legislations on tax matters which provided legal path to engineer corruption in fiscal matters. This is not tax evasion or avoidance; it is a legally accepted system whereby black money can be brought in the economy as 'kosher' money. This corruption is embodied in various laws and practices and such policies are the reason of evaporation of the State's writ to collect due taxes.
Before I proceed further, I would like to clarify my position. It is a known fact that I in my personal capacity had been a part of all fiscal policies that were made after 1990 till 2019. I became an executive by way of Chairman Federal Board of Revenue in 2019 and left in January 2020. It would be an appropriate observation that if I was the part of these groups making such policies then now I have no right to complain against the same. I was a part of that corruption. I will have no hesitation in accepting my mistake, however, I would like to present the matter in an overall perspective before people. People are a better judge. History will record these issues and decide the matter. To err is human.
'State-sponsored corruption in fiscal policies' means legislations and regulations that are made by the parliament which inherently destroy the very fabric of equitable taxation system being an essential prerequisite of any civilized society. I will in the following paragraphs describe two glaring cases which can easily be placed under this classification. People may have a different view on the matter however it is my duty to put forward my stance on the matter. Let the economic analysts and historians decide.
In the political perspective I can easily say that the governments of Nawaz Sharif, Benazir Bhutto, Pervaiz Musharraf, Yousuf Raza Gilani and again Nawaz Sharif from 1988 to 2019 (a period of over 30 years) had almost the same policies as far as the fiscal framework is concerned. It was the same old wine in different bottles. There can be no difference of view, however, during the whole period some steps, as identified below, were taken which in my view grossly fall within the definition of state sponsored corruption. Unless that corruption is curtailed, no meaningful reform in the fiscal system is possible. In this article I will only describe two cases. I have a long list and would dilate on other subjects at some later date.
The outstanding piece of state-sponsored corruption in fiscal matters in Pakistan is the law called 'the Protection of Economic Reform Act, 1992'. I have not been able to comprehend if it is a tax statute or a foreign exchange regulation. This law has destroyed both; the tax (Income Tax Ordinance, 2001) and foreign exchange law (Foreign Exchange Regulations Act, 1947). This law was passed on a wrong premise of 'deregulation' of foreign exchange regime. Under this law that consisted of only less than fifty lines, a strange system of foreign exchange deregulation has been constructed and introduced. Under this law, individuals, not companies (that are better documented) were allowed to buy, sell and hold foreign exchange in any manner and quantum as they like. The extent of privileges under this law can be gauged from the fact that in the case of Khuda Noor the Supreme Court of Pakistan had to give a ruling whether a person can be prosecuted whilst carrying currency notes across the border (Pakistan-China border at Sust). In case if anyone intends to understand a proper deregulated foreign exchange regulation then the best comparative study will be Foreign Exchange Management Act of India that does not allow Private Foreign Currency Accounts to promote a circular kind of activity whereby untaxed wealth becomes easily convertible into white money. In an article under the title 'Unholy Trinity' printed in this paper in 2017 I explained the salient features of these regulations.
A simple example will describe the travesty of this absurd provision of law. As per the original concept that was extensively practiced from 1992 to 2017 the unholy triangle operated in the following manner. A person has a sum of Rs 10 million from say bribery, undeclared sales or any other any other untaxed means. With this money he can buy foreign currency from an 'exchange company' without any enquiry or procedure. That sum of say 1 million dollars (USD) can be placed in a USD account maintained in any commercial bank in Pakistan without any effective KYC (know your customers). The money so kept in the foreign currency account can then be transferred out of Pakistan anywhere in the world including UAE and any other jurisdictions that are tax free. Once transferred to a foreign bank, the amount could be kept there or sent back to Pakistan as inward foreign remittance. The said remittance becomes wholly kosher under the provisions of Section 111(4) of the Income Tax Ordinance, 2001. Is this not a glaring example of money laundering? Can any country afford this kind of regulation? All this was done on the premise that this Act (PERA) will reform the exchange system in Pakistan. In my view this is the worst legislation ever made in any country for tax and foreign exchange regulations. Is it not state-sponsored corruption? All the governments in power from 1992 to 2017 were equally and grossly responsible and perhaps complicit in this scheme.
(To be continued tomorrow)
Copyright Business Recorder, 2020