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March 10, 2017

Swiss accounts


March 10, 2017

At a time when money laundering and tax evasion have become big global and local debates, the Pakistan government has been slowly but surely pushing what can be done about tax evasion and money laundering. Overseas tax havens such as Switzerland dominated the news in Pakistan in the 1990s. The most dramatic and best publicised of these cases involved the still unclaimed jewellery set, valued at an estimated 117,000 British pounds, placed in a Swiss bank locker and alleged to belong to the late Benazir Bhutto. There is no doubt that overseas tax havens have allowed the proliferation of (sometimes illegally acquired) wealth through instruments of financial secrecy. On Wednesday Finance Minister  Ishaq Dar  revealed that the Swiss government has agreed to revisit the existing agreement between the two countries on double taxation. A new convention allowing the two countries to set up information sharing mechanisms will now be put in place by May at the latest. The finance minister has said that Swiss demands which would work against Pakistan, including tax reductions or the grant of MFN status to Switzerland, have been successfully warded off. Switzerland has in recent years been anxious to do away with its image as a global haven for illicit money, while still protecting its banking system, and the deal with Islamabad appears to be one more step towards this.

The government must be appreciated for taking concrete steps in the midst of all the shouting, sloganeering and rallying on the issue of overseas accounts. Most political parties have preferred to make noise about the issue – and use it for political point-scoring – instead of offering ways to resolve the real issues behind Pakistan’s inability to check money laundering through offshore accounts. The Ministry of Finance seems to have continued to work on this issue quietly. The agreement should help reveal the truth about claims that Pakistani nationals have stashed over $200 billion in Swiss bank accounts. The earlier treaty between the two countries did not make it mandatory to share information. Pakistan asked for a new treaty based on OECD standards, which are significantly higher. The Swiss agreement should also open up the path for a number of other countries, including the UAE, Malaysia and UK, to sign similar treaties with Pakistan. However, the new law is still limited in its scope. The government can only ask about specific citizens. There is no automatic mechanism for reporting if a Pakistani citizen opens an account or moves deposits. Moreover, the information revealed will not be public, but will only be available to courts and taxation authorities. While this is a good measure in principle, the government could have pushed for an agreement with a broader scope in this case. And although any action against corruption is to be welcomed in a culture such as ours, it is important measures go beyond the cosmetic. One of our key problems remains the failure to tackle tax evasion at home. The multiple bodies set up for this purpose by successive regimes have failed dismally. Dar and his team also need to examine the failures which have contributed to rampant corruption in all sectors, or almost all sectors, in the country and set up mechanisms to alter this – perhaps with the cooperation of international agencies and governments.



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