Home / Interviews / Examples of measures taken to prevent tax evasion, money laundering
Examples of measures taken to prevent tax evasion, money laundering

Examples of measures taken to prevent tax evasion, money laundering

SBP rightly supervising to check risk of compliance in the banking sector
Interview with Mr. Naim Farooqui –CEO, Sindh Modaraba

PROFILE:

Mr. Naim Farooqui did his O & A levels from Karachi Grammar School and proceeded to United States in January 1974 from where he obtained his Bachelor of Science degree in Industrial Engineering from University of Houston in 1978. Subsequently he obtained an MBA degree in 1983. During this entire period he initially did odd jobs to finance his education and after obtaining his first degree in Engineering worked as an engineer in oil-based industries of Houston, Texas. He has over 35 years of experience in Financial Institutions in various capacities. He is the former President of Sindh Bank Ltd. He joined Sindh Bank Ltd in 2010 and has since remained with the Government of Sindh (GoS) sponsored financial institutions. Currently, he is the CEO of Sindh Modaraba, which is engaged in Islamic Financing.

PAGE: WHAT ARE YOUR VIEWS ON THE CLAMP DOWN ON FINANCIAL INSTITUTIONS IN EFFORT TO PREVENT TAX EVASION, MONEY LAUNDERING AND WEAK GOVERNANCE?

NAIM FAROOQUI: The regulators and agencies are taking measures to control ill-gotten wealth and the subsequent use of it in anti-national activities. It had reflected poorly on our national character but also on our governance abilities, which in my view are available if allowed and applied. Even a moderate effort by the Government could ensure reduction of money laundering and tax evasion as it would channelize funds through banking and other organized sectors, which could improve official economy. By an estimate Pakistan’s black economy is about equal to that of documented economy. It should also help improve the country’s Gross Domestic Product (GDP) and resultantly its tax-to-GDP ratio. Importantly, it would reduce terror financing which is very much propagated against us, whether true or false, by foreign governments and international media. Having said this, caution must be exercised not to harass and demoralize genuine tax payers, legal enterprises and entrepreneurs which could hurt their businesses and our economy.

PAGE: YOUR VIEWS ON THE COMPLIANCE BY THE BANKING SECTOR IN PAKISTAN:

NAIM FAROOQUI: The banking sector in Pakistan remains vigilant and well equipped to control risk of compliance with laws and regulations, thanks to robust on-sight and off-site monitoring of the sector by the State Bank of Pakistan (SBP). It is known for a fact that opening of accounts by individuals, even for private limited companies go through a rigorous scrutiny by branch officials, which has often become a point of grief by potential account holders. The fear of being reported for unusual account activity to the SBP has also reduced layering of funds obtained through illegal means for money laundering. The government has established a unit, Financial Monitoring Unit (FMU) for the purpose, housed within the SBP, and is responsible for taking action when unusual account activity is detected. Transactions of over Rs2.0 million are reported to the unit by the banks and all transactions, which appear to be suspicious are also reported for the purpose of counter terrorism investigations. Failure to report such activities are liable to be fined and/or disciplinary action taken by the Government/SBP/concerned Banks. The banks are also under focus due to recently enacted FATCA (The Foreign Account Tax Compliance Act) by the US, which also screens US residents/citizens for tax purposes and other issues. The account opening forms of the banks specifically require a declaration by the account holder if he/she is a US resident/citizen. They are required to declare all their assets and income in the country they are residing so it could be reported to Internal Revenue Service (IRS) of the US if the person is not based in the US.

 

PAGE: WHAT MUST BE DONE TO PREVENT TAX EVASION IN OUR COUNTRY AND WHAT IS THE ROLE OF BANKS IN THIS REGARD?

NAIM FAROOQUI: Most of the tax evasion is a result of the undocumented economy. It is encouraging to note that the government is focusing on documenting the economy through various measures. Recently, the SBP floated the idea of Financial Inclusion Plan, by virtue of which all citizens are envisaged to operate through the banking system, i.e. issuance of cheques schemes such as Jazz-Easypaisa transfers, smart phone banking operations without involving cash or issuance of cheque, transfer of funds through ATM to any account holder etc.

SBP also requires banks to open new branches annually in the rural areas which is 20% of the plan for opening new branches in a given year. This is to encourage the population in the unbanked/far flung areas to transact formally through the banking system.

Besides documenting the economy, some measures involving carrots and sticks have to be implemented as well, such as the giving of an award through balloting of a paid excise/sale tax receipts of a bill of a restaurant by a customer, as has been announced by Government of Punjab. Heavy penalties must be levied and imprisonment of tax evaders be implemented notwithstanding their status in the society. No discretion should be allowed to the ITOs as also to custom officials for tax assessment.

Agriculture too should be taxed as some corporates/individuals are using it as a vehicle for tax avoidance.

Finally, tax rate should be reduced as an incentive to bring larger number of citizens in the tax net. Presently, it appears that only salaried class, whose taxes are deducted at source, and large corporates are paying their taxes.

Check Also

Healthy competition and growth very likely to improve the quality of professional education in Pakistan

Healthy competition and growth very likely to improve the quality of professional education in Pakistan

KSBL is instinctive in keeping its curriculum modern and according to market needs Better policy …

Leave a Reply