PM Imran Khan. PHOTO: PID

ISLAMABAD: Switzerland has rejected Pakistan’s request to provide five years old tax information; thus, limiting the prospects for a major financial recovery when Islamabad will receive first information in September 2021.



The bank accounts’ information that Switzerland will share almost two years down the line under the Automatic Exchange of Information will pertain to the accounts positions for the calendar year 2020, according to the Federal Board of Revenue officials.



This limits the tax authorities’ ability to ensure major recovery as the money held by Pakistani nationals is perceived to have flown out of Swiss banks after August 2014 – the period when Pakistan and Switzerland had initialed the revised treaty but subsequently shelved the process.



At the time of exchanging the instruments of ratification of the revised bilateral avoidance of double taxation treaty in 2018, Pakistan had requested the Swiss tax authorities to also provide information with effect from August 2014.



Since Pakistan’s demand had no legal justification, the Swiss authorities have informed that they cannot provide any information before January 2019 period, according to the officials. However, Switzerland has agreed to give preferential access to information to Pakistan.



Last week, the Swiss Parliament approved the automatic exchange of bank data with 18 additional countries from 2021 including Pakistan. Switzerland will provide details of bank accounts held by their citizens for January–December 2020 period only.



The revised tax treaty between Switzerland and Pakistan became effective from January 1, 2019. The new tax treaty was signed in March 2017 but it took nearly two years before it was enforced. It replaced the 2008 tax treaty between the two countries.



There was little hope that Pakistan would be able to get benefit from the revised treaty regarding the past transactions. The only benefit that the country will get is that in future Switzerland will not be among the safe havens for Pakistanis.

In August 2014, Pakistan initialed the revised treaty with Switzerland, which would have allowed it to get information about $200 billion in early 2015. Surprisingly, in September 2014, the federal government decided to renegotiate the treaty despite initialing the agreement.



Pakistan has lost five years and the money that was there due to political expediency, as the people who had stashed the funds moved their fortunes to other safe havens.



Money kept by Pakistani nationals in Swiss banks fell by over 34% to the lowest level of CHF 724 million or $738 million in 2018, Switzerland’s central bank, the Swiss National Bank, reported this June.



Pakistanis have been constantly withdrawing their funds from the Swiss banks since 2015 when Pakistan and Switzerland finalised a revised taxation treaty. Since then, there has been a reduction of 49% or CHF 723 million in deposits held by the Pakistanis, according to the annual report.



The $738 million is exclusive of the money that Pakistanis have stashed through safe heavens. One of the impediments in getting access to such information is Resident by Investment schemes promoted by countries like United Arab Emirates and Malaysia.



Status of OECD information



Pakistan faces another challenge of how to get full advantage of offshore tax information that it has received under the Organisation for Economic Cooperation and Development (OECD) agreement. It faces administrative, financial and technological challenges.



In September last year, the OECD had shared information about over 152,000 bank accounts owned by 57,450 Pakistani nationals, having $7.5 billion in bank deposits.



But recoveries amounted to less than $10 million due to two tax amnesty schemes given by the Pakistan Muslim League-Nawaz (PML-N) and the Pakistan Tehreek-e-Insaf (PTI) governments and lack of human resources.



Out of 325 cases involving $5.5 billion worth of assets, 191 persons availed the 2018 and 2019 tax amnesty schemes and declared Rs94.2 billion worth of assets by paying only Rs4.6 billion in taxes.



The Federal Board of Revenue (FBR) has also received fresh information from the OECD in October this year, which it is still being screened out.



The bureau is facing problems of distinguishing 2019 OECD information from that of 2018 as it suspects repetition of old information.



The FBR officials said that the data systems built with the help of the United Kingdom are not equipped to identify duplication of accounts.



They said that the FBR was trying to update the system and it will take almost two months to screen out the information once the new systems are in place.