Before Supreme Court, the FBR contended that Hussain Nawaz was not resident in Pakistan therefore he was not obliged to file income tax return. FBR was perhaps trying to mislead the Court regarding the legal position on the issue. During the court proceedings, in order to avoid taxing of gift by Hussain Nawaz to Nawaz Sharif National Tax Number (NTN) of Hussain Nawaz was produced to avoid mischief of section 39(3) of the Income Tax Ordinance, 2001. FBR intentionally overlooked section 114(1)(b)(vii) of the Ordinance, 2001 that requires filing of income tax return for each year by any person who has obtained an NTN. Under this provision, there is no exception to a non-resident and every person who has obtained NTN has to file his annual return of total income by 30th September each year. This return of total income contains columns for declaring the foreign income and claiming tax credit if tax on foreign income has been paid outside Pakistan. The Commissioner of Income Tax under section 114(4) may by notice in writing require any person who, in his opinion, is required to file a return of income but has failed to do so to furnish a return of income for that year. Whereas, under section 114(5) the said notice can be issued in respect of one or more of the last ten completed Tax Years. Before the apex court, Hussain Nawaz accepted ownership of London Flats since February 2006. This transaction falls within Tax Year 2006 and the Commissioner has the power to issue notice for Tax Year 2006 and to make assessment by 30.06.2017. It is thus crystal clear that FBR has been protecting the ruling family by ignoring explicit provisions of the law.
It is pertinent to note that the order of Lahore High Court [JDW Sugar Mills Ltd etc. Versus Province of Punjab etc 2017 PLD Lahore 68] reveals that the sons of Prime Minister, Hassan Nawaz Sharif and Hussain Nawaz Sharif, are still enjoying business interests in Pakistan [as shareholders of sugar mills] even though while explaining their position vis-à-vis offshore companies, the Prime Minister in his addresses and speech before the National Assembly categorically said that his sons had no business links in Pakistan. However, this case shows otherwise-thus both of them are bound to file tax returns in Pakistan if they are recipients of dividends. Hussain Nawaz holds National Tax Number as well. Section 115(4) of Income Tax Ordinance, 2001, says:
"Any person who is not obliged to furnish a return for a tax year because all the person's income is subject to final taxation under sections 5, 6, 7, 148, 151 and 152, sub-section (3) of section 153, sections 154, 156 and 156A, sub-section (3) of section 233 or sub-section (3) of section 234A shall furnish to the Commissioner a statement showing such particulars relating to the person's income for the tax year in such form and verified in such manner as may be prescribed".
Hussain Nawaz is even required to file wealth statement as per section 116(4) of the Income Tax Ordinance, 2001, which says: "Every person (other than a company or an association of persons filing statement under sub-section (4) of section 115, falling under final tax regime (FTR) shall file a wealth statement along with reconciliation of wealth statement".
Tax Directories published by Federal Board of Revenue (FBR) for tax year 2013, 2014 and 2015 do not mention the name of either Hassan Nawaz Sharif or Hussain Nawaz Sharif as taxpayers! Their names are also not appearing in Active Taxpayers List updated by FBR on March 1, 2017 at www.fbr.gov.pk Tax and financial professionals, accountants, lawyers, academics and writers of the world have a consensus that tax is the foundation of good government and key to the wealth or poverty of nations. But this foundation is under threat by tax havens as proved by the Panama Papers. The following startling revelation has surfaced:
"Nescol Limited and Nielson Holdings Limited were incorporated in BVI in 1993 and 1994, respectively, and were held by one bearer share each. In February 2006, Mariam Safdar signed a resolution of Nescoll Limited as the "sole (bearer) shareholder." MF was appointed as the registered agent through Minerva Trust which described Mariam Safdar as the beneficial owner of both companies.
Following queries from the Financial Investigation Agency in 2012, MF invoked the Anti-Money Laundering and Terrorist Financing Code of Practice (2008) to grill Minerva for information about Nescol and Nielson. In June 2012, Minerva Trust & Corporate Services Ltd revealed that both companies "owned a UK property each" -16 and 17 Avenfield House -and were "owned by the same beneficial owner Mariam Safdar."
The important question is why these properties did not find any mention in declarations of Mariam Safdar in her tax returns? Why did the family opt to use tax havens to buy properties? The answer lies in understanding what tax havens offer. They offer not only low or zero taxes, but also provide facilities for people or entities to get around the rules, laws and regulations of other jurisdictions, using secrecy as their prime tool. Therefore, Tax Justice Network (TJN) prefers the term "secrecy jurisdiction" instead of the more popular "tax haven".
Prime Minister was registered by FBR on 15 November 1995 and NTN 0667649-9 was allotted. In 2012, he showed total net wealth at Rs 244,995,207. Annual expenses in 2012 were shown at Rs 24,096,786. No asset was declared in the name of any dependent and no liability was shown. However, in 2011, land worth Rs 24,851,526 was declared in the name of daughter (Maryam Safdar) as dependent! If it was benami he must have shown it in his own assets for which a specific column is provided in wealth statement. Non-disclosure by Prime Minister of all assets, home or abroad, of dependent daughter amounts to concealment that is punishable. Maryam Safdar (her CNIC 2520158274244 shows name as 'Marriyam Safdar' and under this name she obtained National Tax Number 1308504-2 on 12 October 2001 c/o Chaudhry Sugar Mills). Both in tax year 2011 and 2012, Prime Minister showed salary income from Chaudhry Sugar Mills in which he owned 2,012,538 shares worth Rs 16,000,000. He, together with his spouse, controls this entity in which a loan was said to be received from an offshore company. Doesn't it prove direct link of Prime Minister with offshore companies? There is therefore a related question: Why did the counsel for Imran Khan fail to bring this aspect to the knowledge of court in the Panama case?
Pakistan nationals resident in Pakistan under the Foreign Exchange Act, 1947 read with Foreign Exchange Manual are not permitted to open or maintain any foreign currency accounts outside Pakistan. As an exception, they can maintain foreign currency accounts abroad in any country other than Afghanistan, Bangladesh, India and Israel provided the balances held in such accounts do not exceed US$ 1000 or equivalent thereof in other currencies as provided in Government Notification No. SRO 1016(1) 79 dated October 17, 1979. In his nomination papers, Nawaz Sharif declared foreign currency accounts outside Pakistan exceeding this limit even after returning in 2008. Again, this violation of law was not highlighted in the Supreme Court.
In October 2008, Deutsche Bank (Suisse) SA sanctioned a "cross collateralized "loan of up to GBP 7 million-GBP 3.5 million to Coomber Group Inc (BVI) and GBP 1.75 million each to Nescoll and Nielson-against the four Avenfield House titles. Earlier, in June 2007, Sharif's elder son Hussain and daughter Mariam signed the mortgage agreement for Coomber Group Inc through which in June 2007 a loan of £3.5m was secured from Deutsche Bank. By not disclosing interests/assets/loans in offshore companies of Maryam Safdar, Nawaz Sharif and/or Mohammad Safdar in 2013 purportedly violated section 12(2)(c)(d)&(f) and 99 of Representation of People Act, 1976.Adding that the companies had a loan account with Deutsche Bank Geneva, Minerva said that "neither property is rented and only occupied by the owner and her family." MF passed on the details to FIA but assured by Minerva that they were aware of the client's Politically Exposed Person (PEP) status, MF ordered compliance monitoring every six months and decided not to provide nominee (proxy) directors or shareholders for Maryam's companies.
During his first tenure as Prime Minister (November 1, 1990 to July 18, 1993), the business empire of the 'House of Sharifs' thrived on project loans from foreign banks as well as working capital from the local banks. Foreign currency accounts allegedly fake, were used to whiten untaxed money and secure loans/advances from banks. The following facts, reproduced verbatim from Mian Muhammad Abbas Sharif and 2 others v Federation of Pakistan through Secretary, Ministry of Interior and 2 others [1995 PCr LJ 1224 Lahore High Court], are worth consideration:
"On 26-8-1992 fake account in the name of one Sulman Zia, resident of Main Bazar, Sahiwal, was opened in Habib Bank Limited, AG. Zurich, Lahore, with an initial deposit of US $ 168. Fake account in the name of Muhammad Ramzan resident of House No.5, Street No 6 of Sant Nagar (Lahore) was opened in Habib Bank Ltd, AG Zurich, Lahore, with initial deposit of US $ 300. Subsequently, both of them were issued dollar bearing certificates worth US$ 7,50,000 cash by Union Bank Ltd against cash proceeds of Travellers' Cheques encashed through American Express, New York.
A fake account was also opened in the name of Kashif Masood Qazi (Account No.260133-91) in the Bank of America by having transferred the amounts of aforesaid two fake accounts. Another fake Account No.199936-091 in the name of Mrs. Nuzhat Gohar Qazi wife of Gohar Masood Qazi, resident of Nisbat Road, Lahore was opened in the Bank of America. Ultimately, approximately an amount of US $ 0.5 million was transferred to the account of Kashif Masood Qazi from the account of Mrs. Nuzhat Gohar Qazi.
The aforesaid accounts were found to be fictitious. The Directors of Messrs Hudabiya Engineering (Pvt) Ltd in collaboration with the bank officials of Habib Bank Limited, AG Zurich, Lahore and Bank of America, Lahore, under the influence of Mian Muhammad Nawaz Sharif (former Prime Minister), dishonestly and fraudulently managed to open aforesaid fake accounts/benamis for subsequent creation of loan amount to Rs 60 millions by the Bank of America, Lahore, in favour of the said Company, against the fake account of Kashif Masood Qazi. All these under hand methods were adopted to utilise their black money for securing wrongful gains".
The counsel of Hudabiya did not refute the above transactions but took the plea that "Messrs Hudabiya obtained loan of a few crores of rupees against the accounts opened in the name of Kashif Masood and other mentioned in F.I.R. No.12/94 and Mrs. Sikandara Masood Qazi and other in case of FIR No.13/94." According to counsel, "this was a simple money transaction between the parties that is to say Messrs Hudabiya, aforesaid account-holders and the bankers voluntarily and with each other's consent." He claimed that that there was no question of "committing fraud and cheating in the affairs".
It is a matter of fact that Qazi family later on claimed that they had nothing to do with the foreign currency accounts opened in Pakistan and that they were cheated.
The Counsel of State in 1995 PCr LJ 1224 Lahore High Court] took the plea that available facts proved beyond any doubt that fake accounts were opened to whiten black money for securing wrongful gains. The Division Bench of Lahore High Court held as under:
"A citizen of Pakistan has protection of law in case, he opens foreign exchange account having the facility provided by the Protection of Economic Reforms Act, 1992, but cannot avail the protection of law with a view to make his black money as white by adopting the process of opening fake accounts, mentioned above. We, therefore, maintain that the prosecution has prima facie case to substantiate the allegations levelled against the accused."
Later, a larger bench of Lahore High Court in its judgement Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others 1998 PTD 34, held as under:
"On consideration of various provisions of the Protection of Economic Reforms Act, 1992, we have reached the conclusion that so far as foreign currency accounts are concerned, the holders thereof, have complete immunity from inquiry and scrutiny and complete secrecy must be maintained in respect of those accounts which cannot be violated by any agency or functionary. That being so, neither the Income Tax Authorities nor Federal Investigation Agency had any jurisdiction to hold any inquiry in respect of the transactions in the foreign currency accounts nor could the same be made basis of criminal prosecution."
The larger bench of Lahore High Court adjudicated the issue purely on technical grounds and did not give any verdict on the accusations of money laundering using section 5 of the Protection of Economic Reforms Act, 1992, levelled in FIRs. The fact of using foreign currency accounts was not refuted by the counsel of Hudabiya Engineering (Pvt) Ltd. The High Court quashed the case on legal grounds not commenting on the fact that there was sufficient evidence available that account holders were either fake or had no connection with the business affairs of company.
The larger bench of Lahore High Court in the Hudabiya Engineering (Pvt) Limited v Federation of Pakistan and 6 others [1998 PTD 34] also ignored that benefit of section 5 of the Protection of Economic Reforms Act, 1992 could have been taken only by the persons who purportedly opened foreign currency accounts and not by the company and its directors. It was incumbent on the directors under corporate governance not to take benefit of any tainted funds. On the contrary, the company and its directors sought refuge under a special law to hide untaxed and undeclared money.
The Supreme Court of Pakistan clearly laid down in Ishaq Ahmad Sheikh v The State [2000 SCMR 814] that:
"......the complete secrecy even in section 5(3) [of the Protection of Economic Reforms Act, 1992] is not in respect of all "transactions in the foreign currency accounts"; imply that there can be some possible exceptions to the generalised protection and cover. Neither section 5(3) nor section 9 [of the Protection of Economic Reforms Act, 1992], therefore, would spell out secrecy where a penal act or omission is involved though even in such regard the initiative, aid and assistance of the relevant Court, as in section 94 of the Criminal Procedure Code, has a direct bearing. In other words the secrecy would be complete and even total except for the limited purpose permitted by such a Court as aforementioned".
Doesn't the above judgement of Supreme Court of Pakistan confirm that the directors of Hudabiya Engineering (Pvt) Limited were wrongly absolved by the Lahore High Court under section 5 of the Protection of Economic Reforms Act, 1992 as they did not open foreign currency accounts in their own names and thus could not claim immunity?
There is another interesting angle that needs consideration. By availing cover of Protection of Economic Reforms Act, 1992, the beneficiaries admitted tax avoidance/evasion and therefore they could not contest the elections as ordained in Article 62 of the Constitution of Pakistan. According to a Press report, NAB did pass on information to ECP in 2013 about references of money laundering, corruption and loan defaults pending against Nawaz Sharif, Shahbaz Sharif and other family members. Nawaz Sharif, Shahbaz Sharif and Hamza Shahbaz were allowed to contest elections after they secured stay against proceedings in accountability court. After coming into power, the cases of money laundering and corruption pending against them and other family members were quashed. NAB Accountability Court on September 18, 2014 observed that even after 14 years, NAB failed to produce any witness. The witnesses (members of Qazi family) could have been produced by NAB by seeking assistance of authorities of their residence in order to give statements regarding how fake accounts were opened in their names.
ECP allowed Prime Minister and Chief Minister of Punjab to contest elections in 2013 when it received information that they at that point of time were loan defaulters of Rs 4.9 billion. They borrowed money from nine banks in 1994-95 and did not return the same until 2013 on the plea that NAB confiscated their properties which, according to them, were worth more than the amount of the loans. The question was not that of worth of properties but whether money was due or not at the time of contesting the elections. Law does not permit any loan defaulter (where payment is due for any reason) to contest the election unless payment is made. Admittedly, the Sharif family "paid Rs 5.22 billion by December 2014 under the head of all loans, mark-up, cost of fund and other charges payable by Ittefaq Foundries and a consortium of banks issued clearance certificates in this regard", as admitted by Shahbaz Sharif in a Press conference held in Lahore on July 8, 2015 as "a representative of the Sharif family". This confirmed they could not contest election in 2013 while this amount was still due. The use of the Protection of Economic Reforms Act, 1992 and offshore companies appearing in the Panama case in the names of offspring of Nawaz Sharif for layering and hiding unaccounted for funds is well-documented.
(Concluded)
(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences)
Copyright Business Recorder, 2017