The details of the controls the State Bank of Pakistan has in place would make cash from anyone’s pockets try to fight for freedom. When a market is too tightly controlled, black markets rise as an alternative. Pakistanis have purchased property worth more than Rs445bn in the last two years in Dubai. Where is this huge amount of money coming from? It indicates that for a certain segment of the population, incomes have continued to grow and that these incomes find no profitable avenue for reinvestment within the country.
There are problems with State Bank policies, businesses and individuals cannot open a foreign currency bank account outside the country nor can they own and operate a business while operating from Pakistan. Current rules also impose restrictions on Pakistani businesses on paying for international services that are rendered outside Pakistan. The Economic Freedom of the World Index of 2014 gives a score of zero out of 10 to Pakistan with respect to “freedom to own foreign currency bank accounts”. The laws are ridiculous and you don’t have to be a property tycoon to have broken them. Pakistan nationals resident in Pakistan are only permitted to open or maintain any foreign currency accounts with banks outside Pakistan if the balance does not exceed $1,000. Though this cannot be implemented as the Pakistani state doesn’t have jurisdiction over another countries’ banking laws. It is quite preposterous that this condition even exists. However, lower capital controls can’t solve the problem as people will still use the illegal channels since they don’t want to use banks. The money comes from illegal means or they just don’t want to report it. The real problem is the tax implementation compliance structure.
So, in order to check the flight of capital , our tax officials want authorities in the Gulf States to seek details of real estate investments by around 660 Pakistanis. Does this 660 include the investments of people like Ishaq Dar or Malik Riaz? And does the tax bureau really think that the Gulf States will out the names of the people bringing money to their countries?
Source of funds questions need to be asked, not only to detect ill-gotten gains, but also to curb tax evasion. But this is easier said than done. A large number of individuals with property abroad have a powerful incentive to keep their funds hidden from the authorities and it is probable that individuals would have the means to avoid criminal charges, even if the state is motivated to try. The only way to discourage capital flight is to catch a few high profile politicians with billions abroad and set an example.