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In Pakistan, new tax chief plans to get evaders to pay up

A Pakistan official's plan to overhaul the tax system calls for an amnesty plus payment. Those who ignore his offer risk suspension of their ID cards.

December 13, 2012|By Alex Rodriguez, Los Angeles Times
  • Ali Arshad Hakeem, Pakistan's tax chief, says his main targets are the wealthy, including politicians and Cabinet ministers.
Ali Arshad Hakeem, Pakistan's tax chief, says his main targets are… (Naveed Akram, For The Times )

ISLAMABAD, Pakistan — The man hired to go after a nation of tax evaders jabs his finger at his laptop screen as he scrolls through a database of wealthy Pakistanis and dissects their spending habits.

He stops at the name of a rich man from Peshawar.

Everything's there, Ali Arshad Hakeem says: the man's photo, his home in a posh Peshawar neighborhood, his frequent trips to Abu Dhabi, his BMW and a bevy of bank accounts.

"We have the universe; now how do we use that universe?" asks Hakeem, Pakistan's new Federal Board of Revenue chairman. Hakeem answers his own question. "My approach is to give them an offer."

Hakeem has the Sisyphean task of overhauling Pakistan's broken income tax system, and he claims to have the remedy. He is asking parliament members — a majority of whom are believed to evade taxes themselves — to approve a national amnesty wiping the slate clean for millions of Pakistanis who have never paid a rupee in taxes, if they agree to a one-time payment of 40,000 rupees, about $420. Then, in 2013, they would have to file a return and pay whatever income tax they owe: for example, about$11,100 on a taxable income of $56,000.

If they ignore the offer, he says, the government will suspend their national identity cards, which are needed to travel abroad, maintain bank accounts and buy or sell property. That penalty probably would apply to people who continue to evade taxes after the amnesty ends, Hakeem's aides say. He will also disclose the names and assets of tax evaders in newspapers and on the Internet, he says, and he will push for legislation that rewards whistle-blowers who finger tax cheats.

It's a controversial approach, experts say, and one that critics say provides an easy way out both for individual and corporate tax cheats. Yet it is one that many believe is desperately needed in a country where less than 1% of the population pays income taxes. A host of ills hobble Pakistan, but at the top of the list is the country's inability to generate tax revenue. Pakistan's tax collection record is one of the world's worst. No one has been prosecuted for personal income tax evasion in 15 years, Hakeem said.

With revenue flow at a crawl, the government relies heavily on Western financial aid and bailouts from international lending institutions. Pakistan is due to repay $7.5 billion of what it owes to the International Monetary Fund by 2015, and so far has paid back less than a third of that amount. The government's overall debt earlier this year stood at about $130 billion, roughly 60% of its GDP.

Pakistan's reluctance to tackle tax reform hasn't gone unnoticed by Western leaders, who have warned Islamabad to address the issue or risk losing its lifeline. A Congressional Research Service report released in April cited Pakistan's 9% tax-to-GDP rate as one of the lowest in the world. "For most observers, this represents what essentially is mass tax evasion by the country's economic elite," the report says.

Hakeem, 49, was appointed in July, after a four-year stint as head of the National Database and Registration Authority, the agency that issues the national identity cards. He says his prime target is Pakistan's moneyed upper crust: owners of sprawling two- and three-story marble-floored homes kept white-glove clean by teams of servants.

Among them are ministers and politicians, the very people responsible for enacting and executing laws aimed at fixing the system. A 2010 study by the Pakistan Institute of Legislative Development and Transparency, an independent think tank, reported the average worth of a Pakistani lawmaker to be about $850,000, while the richest lawmaker's assets topped $34 million.

According to a study released Wednesday by Pakistani investigative journalist Umar Cheema, two-thirds of Pakistan's federal lawmakers and more than 60% of the Cabinet did not file income tax returns in 2011. One senator, Mushahid Hussain Sayed, paid less than $1 in income taxes in 2011, Cheema says. The report also says President Asif Ali Zardari did not file an income tax return last year, though it adds that an aide said the president did file a return.

"The problem starts at the top," the report states. "Those who make revenue policies, run the government and collect taxes have not been able to set good examples for others."

To track down cheats, Hakeem and his team of young computer experts have combed a variety of national databases to form individual spending and income profiles. One of those experts and a top aide to Hakeem, Samad Khurram, says previous tax amnesties in Pakistan failed because the government had no idea who the tax evaders were.

"Now we know them, their children, their wives, where they travel, what cars they use," Khurram says. "We're saying, 'We know you, we're coming after you, and if you don't pay, we do this….' That's not an amnesty — that's a threat."

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