Pakistan’s elite is in panic as Dubai demands tax return from invester.
For many years now it has become common knowledge that at least a portion of the vast hordes of black money accumulating in Pakistan has been parked in Dubai. According to FBR sources a bilateral treaty for exchange of financial information for tax matters exist between both countries. A panic has been witness in Dubai real estate for last 3 days. Majority of Pakistanis are inquiring about solid investment opportunities.
The money trial from Pakistan to Dubai is about to end, UAE banks into compliance with what is called the common reporting standard CRS, agreed upon by a group of signatory countries under the umbrella of Organization of Economic Cooperation and Development OECD, which aims to curb tax evasion through offshore havens. All existing high net worth individuals will be asked to furnish details of their permanent residency and the citizenship they hold, and their tax status in their own countries. High net worth is defined as holding an account with a balance of $1 million and above and the disclosure will be required from residents and non-residents alike. A standard format for reporting financial data and its exchange between countries has been developed by the OECD But the CRS needs to be translated into domestic law before a signatory country can avail of the automatic exchange of information that it allows. Until then, individual countries can collect the information and bilateral requests for sharing can be made through relevant treaty arrangement.
The development will certainly result in anxiety among the wealthy elite of Pakistan. Unofficial data from the Dubai Land Authority has claimed several times that more than $2 billion have flowed into the Dubai real estate market by Pakistanis over the past three years. For a number of years now, ads have been appearing in Pakistani media inviting people to invest in Dubai property. The data might be accurate as a majority of the investors are reportedly overseas Pakistanis, yet the information is likely to uncover some major names in Pakistan.
Over the years, Dubai has remained the destination of black money, with the lucrative real estate sector becoming a tax haven for such investors. Dubai had gone unquestioned after the Panama Leaks which resulted in major investigations in countries around the world for the involvement of their citizens in tax evading practices. Many had alleged Dubai being the haven where hordes of black money were stored, but no concrete data was available.
The development has positive as well as adverse consequences for Pakistan. On the brighter side, the mutual exchange of information can help the tax authorities of Pakistan in tightening their grip on the tax evaders, consequently widening the much-needed tax net. But on the other hand, the information can result in denting the confidence of the foreign investors in Pakistan, which was already shaken following the Panama Leaks.
With a medium term economic outlook of Pakistan looking stable, Pakistan needs foreign investment to sustain it in the long run. The security, as well as the power situation, coupled by the China Pakistan Economic Corridor, presents a critical opportunity to boost the economic activity in Pakistan. Amid all this, the investment of Pakistanis is equally important in this regard. For this purpose, not only the government should crack down on the tax evasion, but also make efforts to ensure the protection of these investments. It is expected most of this investment will directly go real estate sector special compliance to Gwadar and Lahore.