Distrust between Imran Govt and investors

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By Babar Ayaz

The recent meetings of the prime minister and army chief separately held with groups of leading businessmen to assure that no action will be taken by NAB reminds me of an anecdote narrated to me by SM Jamil, the first secretary-general of the Muslim Chamber of Commerce in Bombay.

He said that he was told by Quaid-e-Azam to persuade the Muslim businessmen to come and invest in Pakistan even before the country was made. When the meeting was called, the businessmen said that they will invest in Pakistan provided that no questions were asked about where thewealth came from. Most of them had made good money during the Second World War and had not declared taxes on their black money. Mr. Jamil said that when this concern was put forward to Quaid-e-Azam that the Muslim businessmen wanted assurance that no action will be taken against them for hiding their real income, Jinnah said that this should be discussed with Ghulam Mohammad, who was the financial wizard of the All India Muslim League and later the first finance minister of Pakistan.

KARACHI: Oct25- Traders of Bolton market holding placard during protest against FBR in provincial capital.

Ghulam Mohammad assured Mr. Jamil no action will be taken against these businessmen because Pakistan would be a new country. Many years later, when it was said that the textile industry has invested $5 billion, I asked a senior banker that while the private sector borrowing looks less on the official record, how is this claim being made and where has the money come from?

He explained that the money had come from foreign currency accounts which they had stashed abroad by under invoicing their exports. In any case, all the textile fabric used in Pakistan was not recorded. The Faisalabad yarn market worked on a cash basis and the same was true about the wholesale Bolton Market. Even the domestic readymade garment market was dealing in cash.

Nawaz Sharif made a law that Pakistanis can open foreign currency accounts and that no questions will be asked about their money. This gave Pakistanis ample cushion when sanctions were imposed by the US-led opposition after the Pakistan nuclear blast. If I remember correctly, the amount under this scheme was $11 billion, which the then State Bank governor said would run on the bank by people, who have these foreign currency accounts if their assets were neutralized. Finance Minister Sartaj Aziz opposed this scheme but the gentleman he was, once the decision was made, he owned it.

The account holders were offered to encash their money at the rate of Rs46 per dollar. Even today, something like $6 billion in the shape of foreign currency accounts is with the banks. Although the government has gone back on its word and has asked to pay a tax of 5% to whiten their money, which is held in foreign currency bank accounts in Pakistan and 6% if it is held abroad.

This was a breach of agreement between people and banks because the accounts were opened with the clearance that no questions will be asked about the source of income as long as they held foreign currency accounts. But it was no surprise because the new FBR chairman was always against this scheme because he felt that people were laundering their money. In any case, what Shabbar Zaidi did not appreciate was that people were getting the money in their foreign currency accounts and investing in Pakistan.

Take the case of Maryam Nawaz. She invested foreign currency she got from abroad from her brothers in the Chaudhry Sugar Mills, for which she is under trial.

It can be argued that under the FATF, the government had to plug these ways of money laundering, but that should be only restricted to terror financing. Obviously, the sources of finance of Afghan Taliban are opaque and nobody knows how they buy the tickets to travel the world over. That is also terrorism financing.

The government has also failed to understand that the foreign exchange certificates were legal documents introduced by Dr Mahbub ul Haq, which he told me in an interview, was his way of puncturing the strong control of the foreign exchange manual which laid down strict conditions for the movement of foreign exchange. Dr. Haq also introduced ‘whitener bonds’ whereby the local currency black money could be whitened. But at that time the many businessmen said that all the money could not be declared because they have to keep some money for bribing the officials who turn up at the factory gate. At that time there were 26 such departments who had the power to visit and ask for ‘bakshish’.

Even at present the going rate at the income tax department is 20% if you want to get your refund of taxes which are deducted at source. I have had personal experience regarding my refunds,in spite of the order of the FTO, the order was not implemented. People pay their taxes honestly in a welfare state not in a security state. There’s also the element of instability which discourages people to reveal their entire wealth.

(The writer is a veteran journalist and the author of What’s wrong with Pakistan?)