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HomeOpinionPakistan: Improving EOIR standards

Pakistan: Improving EOIR standards

Ensuring transparency in various areas of governance appears to be a continuous challenge for Pakistan. The recent report of Transparency International ranked us at number 140 out of 180 jurisdictions on Corruption Perception Index (CPI) with an overall score of 28 out of 100. Though the report revealed that world corruption levels are at standstill, Pakistan’s score further declined compared to 2020. Other than transparency international, various institutions have showed concerns about maintaining transparency in our dealings.

The recent staff report published by International Monetary Fund (IMF) for the revival of its Extended Fund Facility (EFF) programme for Pakistan also stressed upon ensuring transparency. IMF team expressed concerns over the audit report for COVID-related spending and social payments in fiscal year (FY) 2020 and FY2021 for not making it public, although deadline was August 2022.

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For ensuring transparency IMF wants us to establish an asset declaration system with focus on high-level public officials, including federal cabinet members. This benchmark was to be complied with by end of March 2022, now reset to September 2022. It further requires a comprehensive review of the anti-graft institutional framework (i.e., National Accountability Bureau) by a task force of independent experts having international experience and civil society organizations. The proposed compliance timeline is January 2023.

Apart from IMF’s and Transparency International’s analysis, the World Justice Project’s (WJP) Rule of Law Index 2021 report published in October 2021 also placed Pakistan among the lowest ranked countries in its adherence to the rule of law (ranking 130th out of 139 nations).

Our so-called justice system is undoubtedly performing unsatisfactorily with all stakeholders’ consensus on it. Precedents set by our superior judiciary while deciding various cases usually deviate from principles laid down in Article 10A of the Constitution of Islamic Republic of Pakistan. The way higher courts intervene in legislative matters, issue notices to executive regarding administrative issues, setting new precedents in each case contrary to earlier judgments raises serious questions re transparency in dispersion of justice. Therefore, despite being the fifth largest populous country and seventh nuclear power, our judicial system on the global index is ranked as one performing the poorest.

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Recently, Global Forum on Transparency and Exchange of Information for Tax Purposes released its Peer Review Report on the Exchange of Information on Request, Pakistan 2022 (Second Round, Phase 1). The report was approved on July 07, 2022, by the Peer Review Group of Global Forum, and was adopted by the Global Forum on 05, August 2022.

The Global Forum on Transparency and Exchange of Information for Tax Purposes “is a multilateral framework for tax transparency and information sharing within which, over 160 jurisdictions participate on equal footing. The Global Forum monitors and peer reviews implementation of international standard of exchange of information on request (EOIR) and automatic exchange of information and acts on a party’s request  of foreseeably relevant data for administration or enforcement of domestic tax laws.

Global Forum members have unanimously agreed to have their implementation of EOIR standards assessed by peer review while non-members relevant to the Global Forum’s work are also subject to review. Each jurisdiction’s legal and regulatory provisions along with implementation of EOIR framework are assessed. The final result gives rating for each of the essential elements and an overall mark—https://www.oecd-ilibrary.org/taxation/global-forum-on-transparency-and-exchange-of-information-for-tax-purposes-pakistan-2022-second-round-phase-1_8cddffce-en

The report assesses Pakistan’s general rating based on compliance with EOIR standards mentioned in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, based on 2016 terms of reference. It states that Pakistan has limited provisions in place to provide international cooperation regarding beneficial ownership. The EOIR standards are divided into 10 essential elements under three categories, such as (i) availability of ownership, accounting, and banking information, (ii) access to information by the competent authority, and (iii) exchange of information.

Assessment of EIOR standards’ compliance is based on each element’s legal and regulatory framework application to determine whether such jurisdiction is compliant, non-compliant or somehow compliant but needs improvement. FATF’s assessment about that jurisdiction is also taken into consideration.

In Pakistan’s case, Mutual Evaluation Report 2019 published by Asia Pacific Group (APG) showed concerns over maintaining transparency about beneficial ownership. The recent report compared to First Round Report published in 2016 confirms that Pakistan showed improvements and opted to become a party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (the Multilateral Convention) in 2017.

When it comes to rating and determination Element A1 is rated as partially compliant and needing improvement whereas element A2 relating to availability of accounting information is rated as largely compliant and determined as in place. However, element B pertaining to access to information, rights and safeguards are in place. Standard C concerning EOIR mechanism meaning by, confidentiality, and right and safeguards are in place but confidentiality is rated as largely compliant. The quality and timeliness of response rating were partially compliant whereas determination was not applicable.

The report also highlights that Pakistan received 56 exchanges of information requests during the period from April 1, 2018, to March 31, 2021, compared to 16 received in the review period 2016.  Pakistan’s performance showed a positive trend in these three years. However, Pakistan made 1,042 outbound requests for a similar period with the majority of these requests made in bulk, to follow-up on automatic exchange of information of financial accounts due to various offshore data leaks with 74 being original number excluding bulk requests.

The report made some recommendations and wants Pakistan to ensure that its third-party reliance rules are in sync with the standards and that sanctions should be imposed on trustees if they fail to comply with record-keeping and filing obligations under the trust law.

The Global Review Forum also wants Pakistan to renegotiate its old treaties to bring them fully in line with the standards. It recommends that Pakistan should expedite its efforts to conclude exchange of information agreements with any new relevant partners to align with the standards and also renegotiate confidentiality provisions within Double Taxation Conventions with Bosnia and Herzegovina, Denmark, Hungary, Kyrgyzstan, and Norway.

Pakistan needs to incorporate recommendations made in Peer Review Report 2022. These should be addressed and provided to the Peer Review Group no later than June 30, 2023. Though Pakistan improved its compliance with the standards and got a good ranking, yet Peer Review has shown its reservation in recommendations related to compliance with standards A1 to A3. However, Pakistan submitted its response against concerns related to standard A3 and said that it is fully compliant with the relevant standard as State Bank of Pakistan being a financial sector supervisor and other regulators are comprehensively applying a risk-based approach for meeting the standard in letter and spirit.

Pakistan has sufficient time to streamline the other concerns highlighted in the report related to beneficial ownership, oversight, and enforcement of anti-money laundering (AML) ownership identification, issues related to the existence of bearer shares in Pakistan, implementation of legal framework, and the availability of information on waqfs (trusts) in practice.

Pakistan should also address gaps related to non-professional trustees of foreign trusts not covered by tax or AML law obligations, the prevalence of foreign foundations operating in Pakistan, and customer due diligence practice by the banks. Pakistan should also work on improving the quality of outgoing exchange of information requests as well as streamlining the practice of disclosing the requesting jurisdiction’s identity to information holders. These steps will not only help to address matters related to financial action task force but will also help in tracing undisclosed foreign assets acquired through stolen money by politicians, judges, bureaucrats, and military officials.

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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, investment companies, money service businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).

The recent publication, coauthored by these writes with Huzaima Bukhari, is:

Pakistan Tackling FATF: Challenges & Solutions

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