ISLAMABAD: Organization of Economic Cooperation and Development’s (OECD) Secretary General has formally informed that Pakistan will be invited to become a signatory of a convention on tax matters after Islamabad’s tax laws become fully compliant, said Finance Minister Ishaq Dar on Thursday.
Dar rushed to divulge the details of the invitation in the upper house of parliament and a standing committee of the lower house to deflect growing criticism over ‘giving backdoor escape to Panamagate accused’ by introducing an amendment through Finance Bill 2016.
Dar ‘clarified’ that the government’s position on controversial clause 23 of the Finance Bill, which the opposition dubbed as the “Maryam law”, is introduced to amend section 80 of the Income Tax Ordinance. Through clause 23 the government has proposed to bring foreign trusts in the ambit of law. “There is no nexus between foreign trusts and Panama Papers”, claimed Dar. The opposition is of the view that Maryam Safdar, daughter of Prime Minister Nawaz Sharif and who owns offshore companies, is bailed out through this clause.
According to Dar, the secretary general has informed that Pakistan will be invited to become a signatory of the convention on mutual administrative assistance in tax matters once the amended section 107 of the Income Tax Ordinance of Pakistan is enforced.
The government has proposed the amendments in the section 107 through the Finance Bill, which will allow the country to become a signatory of any multination forum on tax matters. The amendments will become part of the law from the start of new fiscal year 2016-17, beginning from July 1st.
“The federal government may enter into a tax treaty, a tax information exchange agreement, a multilateral convention, an inter-governmental agreement or similar agreement or mechanism for the avoidance of double taxation or exchange of information for the prevention of fiscal evasion or avoidance of taxes,” according to the proposed section 107.
In March 2014, Pakistan sent a formal request to the OECD Secretariat for becoming signatory of the Convention. The OECD Secretary General forwarded the request to the OECD Coordinating Body the next month. The coordinating body has proposed certain amendments in the text of Section 107 of Income Tax Ordinance 2001.
Pakistan hopes to become a signatory of the convention on mutual administrative assistance in tax matters before the end of this year. It is a joint initiative of Council of Europe and OECD. The hallmark of the convention is combating tax avoidance and tax evasion through exchange of information amongst signatories of the convention.
The convention is the most comprehensive multilateral instrument available for all forms of tax co-operation to tackle tax evasion. One of the key elements is that the information will be exchanged on automatic basis amongst the jurisdictions on banking and other details of the corresponding nationals and tax residents of such jurisdiction.
Dar said that after opposition’s objections over clause 23, he talked to the OECD over the matter. The OECD has agreed that it would not seek an amendment in clause 80, if Pakistan’s law ministry certifies that foreign trusts are covered without the amendment, the Finance Minister said.
Dar said that the clause 23 amendment has been proposed to meet the requirement of the OECD for getting global body’s membership. He said that the clause would rope in people instead of exonerating them.
However, Finance Minister’s statement has created more doubts about the purpose of introducing the clause 23, as the OECD completed the Peer Review of Pakistan’s law in March this year. People with knowledge of OECD working said the global body would not waive off a condition just because of political upheaval in Pakistan.
They said that the government apparently tried to use the name of the OECD to amend the section 80 through clause 23. They said that the next step was giving an amnesty to offshore companies, which was not possible without bringing foreign trusts in the law ambit.
Published in The Express Tribune, June 10th, 2016.