Pakistan has formally requested the Malaysian tax authorities to assist in identifying Pakistanis who have taken their illegal funds out of the country and invested in Malaysia's Residence by Investment (RBI) schemes and are now hiding behind RBI-based residential status. Post-going after the Iqama (work permit) holders of the United Arab Emirates (UAE), Pakistani tax authorities have taken another big step to seek details including accounts information of Pakistanis having parked illegal funds in Malaysia by obtaining RBI-based residential status.
Dr Muhammad Ashfaq Ahmed, Director General (International Taxes), Federal Board of Revenue (FBR), has written a letter to Shaharrudy Othman, Director Department of International Taxation Inland Revenue, Board of Malaysia. The DG International Taxes FBR informed Malaysian tax authorities that Pakistan has absolutely no problem with the Pakistani nationals investing and doing business in Malaysia legally with lawfully remitted funds.
"However, we are gravely concerned with the persons who may have siphoned off funds illegally from Pakistan, parked them in Malaysia and now hiding behind RBI-based status to circumvent reporting under the CRS. This is, of course, not a desired situation for either of the nations - particularly Pakistan," said Dr Ahmed.
According to the communication of the Director-General (International Taxes) FBR to Department of International Taxation Inland Revenue Board of Malaysia, Pakistan and Malaysia signed the Agreement for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (ADTA) on May 29, 1982, which came into effect on April 12, 1983.
Not only the title but also the very preamble of the ADTA notably mentions the "prevention of fiscal evasion" as one of its cardinal goals and objectives. Article 27 of the ADTA deals with exchange of information (EOI) between Pakistan and Malaysia. Although both countries have historically continued to maintain an active EOI relationship, yet the signing of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, has reinforced and emphasized its importance, said Dr Ahmed.
Moreover, both Pakistan and Malaysia have in place an active Automatic Exchange of Information (AEOI) relationship on financial and bank account information under the Common Reporting Standard-Multilateral Competent Authority Agreement (CRS-MCAA) signed under the Multilateral Convention. The first exchange of the bank and financial account information under the CRS-MCAA took place on September 30, 2018.
Dr Muhammad Ashfaq said that apparently, information received from Malaysia is not very substantial since not only a total of 1,609 accounts have been reported but also that the number of material accounts with substantial balance is negligible. "This information is not only contrary to our expectations but is also insignificant in comparison with Pakistan's other exchange partners." The internal deliberations on the matter indicate that it might be due to Malaysia's domestic laws which allow foreign nationals to obtain residence on the basis of investment beyond a certain threshold.
"This may be pointed out that we have absolutely no problem with the Pakistani nationals investing and doing business in Malaysia legally with lawfully remitted funds. However, we are gravely concerned with the persons who may have siphoned off funds illegally from Pakistan, parked them in Malaysia and now hiding behind residence by investment (RBI) based residential status to circumvent reporting under the CRS. This is, of course, not a desired situation for either of the nations, particularly Pakistan."
Accordingly, the Inland Board of Malaysia is requested to guide and assist FBR as to how to identify Pakistanis who many have taken funds of dubious credentials out of Pakistan and invested in Malaysia's RBI Schemes like Malaysia My Second Home Program. Legally speaking, Articles 26 and 27 of Pakistan-Malaysia DTA do support formal and structured deliberations on a matter of mutual or a unilateral concern, maintained Dr Ahmed.
It goes without saying that this gesture would go a long way towards helping the government of Pakistan in retrieving its lost revenues and investing them in improving governance and welfare of its own people, said the communication.
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