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This week, three events related to Pakistan in international spheres have been largely ignored by media. These are extremely important for the future course of econo-political life of the country. These are:

  • An Indian minister has stated that the UAE (United Arab Emirates) has decided to invest in infrastructure development in the Illegally Indian Occupied Jammu and Kashmir (IIOJ&K);

  • Turkey has been placed on FATF’s (Financial Action Task Force’s) grey list; and

  • Pakistan has not signed the OECD (Organization for Economic Cooperation and Development) document on taxation matters whereby all the signatories have been asked to levy a certain level of minimum tax on companies in order to avoid abusive tax regimes.

All the three subjects do not present good portents for Pakistan. However, these developments reveal that there is an urgent and imminent need for Pakistan to reconstruct its politico-social policies and narrative. All these events are only an indicator of a big change that is fast emerging on the global economic horizon. Unfortunately, we are not well placed in that horizon on account of our incorrect policies in the past.

Pakistan being located in close proximity to the UAE is one of her main business and financial services partners. Since the economic policies of the UAE, for their own interest, are based on a tax- free, low regulatory compliance environment, therefore it is a very safe haven for accumulation of funds from outside. On account of our weak and flawed taxation policies and systems and prevalent corruption a very substantial part of such funds represent grey money moved to the UAE. The UAE authorities and their policies cannot be blamed for that. Our own house has to be in order. There are however certain factors which require immediate reconsideration in relation to economic relations with the UAE.

Pakistan has a unique undesirable avoidance of double taxation treaty with the UAE (there should be none as there is no tax in the UAE therefore the question of double taxation does not arise) whereby capital gains arising in Pakistan to a UAE tax resident is exempt from tax. This is a totally unjustified provision. Secondly, the concept of residence termed as ‘Iqama’ is frequently abused by delinquent Pakistanis. That some of our very high level dignitaries are among the Iqama holders is a fact. When I was Chairman Federal Board of Revenue I tried to grab these people; however, we could not get requisite support from the UAE authorities.

Pakistan has supported the UAE in its infancy through a variety of steps, including providing gestation support to Emirate Airlines which has consumed the relevance of Karachi International Airlines (PIA). Nevertheless, if the information as revealed by the press relating to the planned UAE investment in IIOJ&K is correct then it should be clearly noted that this development will seriously weaken Pakistan’s stance on the disputed territory at international forums. One must not lose sight of the fact that the UAE and Saudi Arabia, the two oil rich Arab economies, have already pledged to make massive investments in India. Unfortunately, however, investments by such countries in Pakistan are almost nil. This shows the economic considerations have a clear precedence on any other consideration.

In this regard, it is highly important to understand the developments in IIOJ&K. Under Article 370 (defunct since 2019) of the Indian Constitution, persons not being resident of Jammu and Kashmir were not allowed to purchase real estate in the valley. This Article was made part of India’s constitution as a result of an agreement between Jawaharlal Nehru and Sheikh Abdullah. On 5 August 2019, the Union Government revocated the special status granted to Jammu and Kashmir under the Article 370 through a Presidential Order, and made the entire Constitution of India applicable to the state. This implied that the Article 35A stood abolished. As a result of this change now Kashmir will be actually an ‘economically occupied’ territory. If countries like the UAE invest in IIOJ&K then a very serious scenario will emerge in the occupied territory. In this connection it is important to note that New Delhi will try to play its cards well by extending extraordinary benefits to prospective investors for making investment in IIOJ&K with a view to alienating the Kashmiris from their struggle that they have been waging for decades against the illegal Indian occupation of their land.

(To be continued on Saturday)

Copyright Business Recorder, 2021


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