Tax Declarations Of Prime Minister: Significant Gaps

Tax Declarations Of Prime Minister: Significant Gaps

“Illicit financial activities enabled by tax havens undermined the fight against poverty. When taxes are evaded, when state assets are taken and put into these havens, all of these things can have a tremendous negative effect on our mission to end poverty and boost prosperity.”
—Jim Yong Kim, President World Bank.

In response to a question asked by Pakistan Peoples Party (PPP) MNA, Dr. Nafisa Shah, the Federal Finance Minister claimed that, “Offshore companies are legal and could be financially beneficial within the legal framework, but they could also be used for illicit purposes”. The Federal Board of Revenue (FBR), according to the Finance Minister, has been obtaining documentary evidence regarding investment made in offshore companies and revenue generated through these companies by Pakistani residents. He added, “The results obtained will then be analysed and compared with FBR’s database and with the taxpayers’ record. No action will be taken if the data matches the information regarding the assets provided to the FBR.”

The punchline of Mr. Ishaq Dar’s statement is that the offspring of the Prime Minister established offshore companies legally and not for illicit purposes. Since his sons are non-residents, for the purpose of tax laws of Pakistan, no action is warranted. With regards to Maryam Nawaz, she is a mere trustee, having no financial interest/investment in offshore companies. Hence the matter ends with no further action! This was the conclusion of the worthy Finance Minister even before any investigations. However, to the surprise of Mr. Ishaq Dar and many others, the Supreme Court of Pakistan on November 1, 2016, after admitting five petitions under Article 184(3) of the Constitution, took serious notice of the inaction on the part of National Accountability Bureau (NAB) regarding disclosure in Panama Leaks, showing names of the offspring of the Prime Minister.

The interesting and intriguing part of the statement filed by the Finance Minister in the National Assembly is this: “If the person provides complete documentary evidence that he is non-resident for tax purposes, no further action can be taken under the income tax laws.” This is where the catch lies. The sons of the Prime Minister are non-residents for tax purposes and according to the Finance Minister no action can be taken against them! The real point being missed is that the Prime Minister has been the investor/beneficiary of the properties/businesses abroad—these are held as benami in the names of the offspring who never had independent sources of finance for these assets/businesses. Action can be taken against the Prime Minister under section 108 and 109 of the Income Tax Ordinance 2001 for tax avoidance and colourful transactions.

There was no disclosure by the Prime Minister of any assets abroad in his election nomination papers, filed on March 31, 2013. The same position is reiterated before the Supreme Court on November 3, 2016 in a concise statement filed on November 3, 2016. Mian Muhammad Nawaz Sharif submitted that his “name does not appear in the Panama Papers”. He has also specifically denied that any of his family members were beneficial owners of Nescoll Limited and Neilsen Enterprises Limited in the years 1992 and 1994, respectively, when the same were incorporated. It is further stated that he “is a regular taxpayer and files his tax returns as well as the wealth statement in accordance with the provisions of the applicable laws”.

In his speech before the National Assembly on May 16, 2016, the Prime Minister, while explaining the money trail for the purchase of London flats, claimed that his late father, Mian Muhammad Sharif, established a company by the name of Gulf Steels in Dubai in 1972 and sold it in 1980 for US $9 million. He further revealed that the late Mian Sharif also set up a steel mill in Jeddah. This was done after the family was sent abroad on December 10, 2000 by Pervez Musharraf, who confiscated all their assets. He said that capital for this came through the sale of the Dubai factory. The first question is how was the money sent to Dubai? It can be seen as a confession that sale proceeds were lying abroad from 1980 to the day of investment in Saudi Arabia! Investigation is thus needed for violation of the Foreign Exchange Act of 1947, if any. He went on to claim that, “We sold this factory (Jeddah Steel Mill) for US $17 million in June 2005 and all record for the Jeddah and Dubai Steel Mills is available.”

It is an established position as reported by The Guardian on December 11, 2000 [Pakistan frees Sharifs to exile in Saudi Arabia] that as a condition of his exile, Nawaz Sharif left Pakistan by his own choice and agreed not to participate in politics in Pakistan for the next 21 years. According to The Guardian, “His property worth US$ 8.3 million was forfeited as part of the deal and he also agreed to pay a fine of US$500,000. His brothers Abbas Sharif and Shahbaz Sharif, who were serving jail sentences for corruption, were also freed and allowed to leave with him.” This was a tormenting day for the entire Sharif family. An elected Prime Minister was to leave the country, accompanied by 18 members of his family, including his wife, his three children and his elderly parents.

If we are to believe the Prime Minister, Nawaz Sharif, that as they went into exile empty-handed, investment in Saudi Arabia was financed by the sale of the steel mill in Dubai and investment in London flats was done out of disposal of Jeddah Steel Mill, then the following questions arise:

1. Under the Wealth Tax Act 1963 [repealed in 2003] why did Mian Muhammad Sharif not disclose foreign assets (Gulf Steels) first, shares (from 1972 to 1979) and then cash of US$ 9 million?
2. Who were the other shareholders in Gulf Steels, Dubai?
3. Hassan Nawaz and Hussain Nawaz in their interviews claimed that investment in Azizia Steel Mills came from Saudi banks and friends. However, Nawaz Sharif said it came from the sale of Gulf Steels alone. Who is lying?
4. In a report [Sharifs like to set up a steel mill in Saudi Arabia] of July 8, 2001, Gulf News revealed that, “According to reports, a loan is to be obtained from the Saudi Industrial Development Fund for the mill. If this loan is granted, the mill will be set up at a cost of around SR122.5 million on 30,000 square meters of land near Jeddah. Manpower will be brought in from Pakistan, while some people at top management levels have already been contacted.”
5. In another report [Sharif brothers split assets] of May 14, 2005, Gulf News revealed that, “The late Mian Sharif had bought three flats in London for his three sons, which now had been distributed among the brothers.” This shows that the flats were purchased much earlier than the sale of steel mills in Jeddah as claimed by Nawaz Sharif. This report makes the following disclosures:

• The Sharifs’ empire split into two following the death of Mian Sharif. Nawaz Sharif and Shahbaz Sharif opted for the division of assets/liabilities, but their younger brother Abbas Sharif (who died in 2013) refused to separate his assets and authorized Nawaz Sharif to look after them.
• Under the new alignment of assets, Shahbaz got Ramazan Sugar Mill, while Chaudhry Sugar Mill and Hamza Chipboard and Paper Mill were given to Nawaz.
• In terms of distribution agreement, Shahbaz got a better deal as Nawaz inherited loans on Chaudhry Sugar Mill and Hamza Chipboard and Paper Mill.
• Al-Azizia Steel Mill established in Saudi Arabia was sold to Shaikh Mohammad Saeed after the death of Mian Sharif and money was not entirely under the control of Nawaz Sharif.

Mian Muhammad Sharif, the late father of Prime Minister, was the owner of one flat in Mayfair, London, as per the order of Queen Bench, London, in the case of recovery of loan from Hudabiya Mills by Al-Towfeek Investment Bank. After his death, shares of Hudabiya Paper Mills were shown in his assets by the Prime Minister as inherited, but property was not! Nawaz Sharif, after returning to Pakistan in late 2007, filed wealth statements for tax year 2011 and 2012 on March 21 and 22, 2013 respectively. He did not file wealth statements from 2007 to 2010 to justify increase in assets vis-à-vis wealth statement filed on June 30, 2007 with nomination papers for 2008 general elections.

The question is, why were these statements not filed on time? It is strange that wealth statements were filed just a few days prior (on 22-03-2013) to the filing of nomination papers (31-03-2013). Why was this lapse/default ignored both by the FBR and the Election Commission Pakistan (ECP)?

In the wealth statement filed for tax year 2011, Mian Muhammad Nawaz Sharif showed agricultural property in the name of Maryam Nawaz. It is an admitted fact (re Panama Papers and interview of Hussain Nawaz) that Maryam has been the sole owner of two BVI companies and also co-owner of one BVI company. She signed loan papers to secure funds against the London properties. Her husband Mohammad Safdar never disclosed assets of his wife in his nomination papers. It is pertinent to mention that in 2011, Nawaz Sharif showed land worth Rs. 24,851,526 under Maryam’s name in column 12 of the wealth statement that categorizes spouse, minor children or other dependents!

Below are some glaring dichotomies in the income/expenditure and assets declarations filed with nomination papers on 31-03-2013:

1. There is no disclosure by the Prime Minister of any asset abroad of any of his family members in his nomination papers, though Maryam Nawaz herself admitted that she lives with her father and owns no property within or outside of Pakistan. It is an admitted fact (re Panama Papers and interview of Hussain Nawaz) that Maryam has been the sole owner of two BVI companies and also co-owner of one BVI company. She signed loan papers to secure funds against London properties. Even her husband Mohammad Safdar (having the permanent address of Jati Umrah, Raiwind Road as per the website of National Assembly) did not disclose assets of his wife in his election nomination papers. It is pertinent to mention that in 2011, Nawaz Sharif showed land worth Rs. 24,851,526 under Maryam Safdar’s name! Reading all these facts together, Nawaz Sharif was bound to declare interests of his offspring, especially Maryam as she admitted dependence on father.
2. First Lady in Tax Year 2012 declared income of only Rs. 2,136 as profit from a bank account. She gave loan of Rs. 1,650,000 to mother-in-law and Rs. 1,100,000 to one Farooq Barkat. She showed shares worth millions in four companies. In Chaudhry Sugar Mills, her holding was shown at 506,147 shares (worth Rs. 5,126,720). She received no dividend from any company! She also showed liability of Rs. 500,000 as business capital overdrawn in the name of her younger daughter (Asma Ali Dar). No business connection is shown by the Prime Minister though spouse has shown the same. Nawaz Sharif under the law was bound to show all the assets/liabilities of his spouse and dependents.
3. The late father of Prime Minister, Mian Muhammad Sharif was owner of the London property as per the order of Queen Bench, London in the case of recovery of loan from Hudabiya Mills by Al-Towfeek Investment Bank. After his death, shares of Hudabiya Paper Mills were inherited by Prime Minister but property was not!
4. Prime Minister showed liability of Rs. 110,000,000 in respect of Ramazan Sugar Mills as on 30-6-2011. The total net worth declared was Rs. 149,398,035 (in 2010 net wealth was Rs. 63,737,827). Total expenses were shown at Rs. 19,878,706. No information is provided as to who was paying expenses of the palatial Raiwind residence (records show Shamim Farms under the mother’s name who has no resources to bear its expenses).
5. Nawaz Sharif, as per the nomination papers filed in 2013 with ECP for contesting elections in 2013, showed total net wealth as on 30-06-2012 at Rs.261,659,827 and as on 30-06-2011 at Rs.166,049,542 showing accretion at Rs.95,610,542 whereas comparative analysis of wealth statements filed in income tax department for Tax Year 2011 and 2012 is tabulated below:

	Tax Year 2011	Tax Year 2012
Net Wealth on 30th June	149,398,035	244,995,207
Net Wealth on previous 30th June	63,737,827	149,398,035
Increase in Net Wealth during the year	85,650,208	95,597,172

As per income tax/agricultural income tax returns, attached with the nomination form, the total income from all sources and personal expenditure are as under:

Tax Year	Total Income from all sources(Salary, Bank Profit, Agriculture)	Personal Expenditure	Surplus for Accretion in Net Wealth
2012	20,930,546	24,096,786	Personal expenditure exceeds income from all sources. There is, in fact, deficit of Rs. 3,166,240
2011	15,779,745	19,878,706	Again personal expenditures exceeds income from all sources and there is deficit of Rs. 4098961

6. From this table it is evident that out of declared and taxed income, no sources were available for accretion in net wealth over the period from 30.06.2010 to 30.06.2012. However, net wealth increased from Rs.63,737,827 as on 30.06.2.010 to Rs.244,995,207 as on 30.06.2012, which was beyond the available (offered for tax) sources of income.
7. No Pakistani citizen can open foreign currency account exceeding US $1000 or equivalent in any other currency abroad without the approval of the State Bank of Pakistan. Nawaz Sharif declared in 2011 a foreign currency account in Jeddah with a balance of more than the prescribed limit. After returning to Pakistan from what he called exile and before contesting elections, he should have closed this account or obtained approval from Pakistan.
8. As per the wealth reconciliation statement for Tax Year 2011, Nawaz Sharif showed the following gifts during the year:

Gift to Daughter – Mrs. Maryam Safdar: Rs. 31,700,000

Gift to Son– Mr. Hussain Nawaz: Rs.19,459,440

Whereas Muhammad Safdar, husband of Mrs. Maryam Safdar, in his statement of assets and liabilities as on 30.06.2011 to the ECP, as published in the Official Gazette, showed “no change in the assets during the year”. If the amount was gifted to the daughter through cross-cheque as required under the law, the husband was bound to declare it. It might have been an afterthought to reduce the net wealth as the accretion was substantial and Nawaz Sharif could not justify the same from his declared/taxed sources.

9. Nawaz Sharif, in his nomination papers, attached the ‘Wealth Reconciliation Statement for Tax Year 2011’ in the format prescribed under the Income Tax Rules. It is reproduced below:

PARTICULARS	AMOUNT
Net Assets as on 30.06.2011 Net Assets as on 30.06.2010	149,398,03563,737,827
Increase in Assets	85,660,208
SOURCES Income declared, Agricultural Income, Bank ProfitGift from SonForeign currency translate / conversion effect	10,200,0005,075,00097,257129,836,9051,489,192
Total Sources	156,698,354
LESS: EXPENDITURE Personal Expenditure, Gifted to Daughter – Mrs Maryam Safdar, Gifted to Son – Mian Hussain Nawaz	19,878,70631,700,00019,459,440
Total Expenditures	71,038,146
Balance available for increase (156698354 – 75238146)	85,660,208

10. From this chart it is evident that the accretion is on account of the gift from the son for Rs.129,836,905. This gift raises many questions. For example, as per section 39(3) of the Income Tax Ordinance 2001 any amount claimed as gift should be received either through a cross-cheque or through a banking channel from a person holding a National Tax Number (NTN). Admittedly, Hussain Nawaz was not an NTN-holder. This amount was to be offered as income even if received through a banking channel, which Nawaz Sharif had failed to do.
11. As mentioned above, section 39(3) of the Income Tax Ordinance 2001 requires that the gift should have been through cross-cheque or a banking channel from a NTN-holder (failing which the gift is to be treated as income of the recipient). Gifts through prescribed modes are not shown by Maryam Safdar or her husband. As admitted, a huge sum of Rs.111,110,000 was withdrawn in cash from bank accounts by Nawaz Sharif. This indicates that the gifts of both amounts were aimed at reducing the net wealth to match the available resources. If these gifts were in violation of section 39(3) of the Income Tax Ordinance 2001 then both Hussain Nawaz and Maryam Safdar are guilty of avoiding tax. However for colourful transactions, action under section 108 and 109 of the Income Tax Ordinance 2001 is to be taken against the Prime Minister.
12. It is worth noting that the ‘wealth statement’ is prescribed under Income Tax Rules 2001, and as provided under section 116(1) of the Income Tax Ordinance 2001 it must contain the following particulars:

1. • Person’s total assets and liabilities;
   • Total assets of the person’s spouse, minor children and other dependents;
   • Any asset transferred by person to others during the year;
   • Total expenditure incurred by the person and the person’s spouse, minor children and other dependents;
   • The reconciliation statement of wealth.

13. Nawaz Sharif, contrary to the provisions of section 116(2) of the Income Tax Ordinance 2001, did not file the Wealth Statement with the return of total income. He did not comply with the law even when pointed out through a note on the ‘acknowledgment slip’. In fact, Wealth Statements for the Tax Year 2012 and 2011 were filed just before the filing of nomination papers, with details as under:

Tax Year	Date of filing of Return	Date of filing of Wealth Statement
2012	09.10.2012	22.03.2013
2011	21.11.2011	21.03.2013
2010	30.10.2010	Not Available

14. Not filing of wealth statement for the tax year 2010 was a serious lapse that was not noticed by the FBR or the Returning Officer while concluding that the nomination papers were correct and complete.
15. As per Sr. No.4 of FBR’s guideline to the ECP for the determination of tax default in cases where filing of ‘wealth statement’ was obligatory, the following were to be checked and whether the same had been filed:

• Along with the tax return;
• After filing of tax return; or
• Has yet not been filed.

However, the Returning Officer did not follow the guideline and also ignored the late filing (of more than one year) as tax default for the applicability of Article 62(1)(d) of the Constitution of Pakistan.

16. Nawaz Sharif, after returning to Pakistan in late 2007, filed wealth statements for the tax years 2011 and 2012 on March 21 and 22, 2013 respectively. He did not file wealth statements from 2007 to 2010 to justify increase in assets vis-à-vis the wealth statement filed on 30.06.2007 with nomination papers for 2008 general elections. Why were these statements not filed on time? It is strange that wealth statements were filed just before the filing of nomination papers and default for late filing was ignored by both FBR and ECP.
17. Why did FBR not take any action for the late filing of wealth statements? It is an offence under section 182(1) of the Income Tax Ordinance 2001. It attracts a penalty of upto 25% of the amount of tax payable. The tax-payable amount as per ‘acknowledgment slips’ for these years is as under:

Tax Year	Tax chargeable		Maximum Penalty under Sr.No.1 of Table u/s 182(1)
	Amount	Sr.No. of Return	Amount
2012	2,207,118	44	551,780
2011	2,224,466	42	556,117
2010	2,012,979	38	503,245

At the time of filing nomination papers in 2013, Nawaz Sharif was head of the PML(N) party and twice enjoyed the post of Prime Minister, yet he violated the command of law (Income Tax Ordinance 2001). He was therefore not an eligible candidate in terms of Article 62(1)(d) as well as 62(1)(e)/(f) of the Constitution.

18. In his nomination papers Nawaz Sharif mentioned that he was living with his mother. Therefore, it is understandable not to declare the cost of furniture, fittings and articles of personal use. But it is surprising that personal items, including expensive watches (which he displays with pride), are totally missing! These are not even shown as gifts (though many cars are)!
19. Mohammad Safdar has never declared the assets of his wife, while his father-in-law in Tax Year 2011 showed a gift of Rs. 31,700,000 to Maryam. Maryam Safdar became the sole shareholder of Nescoll in 2006 and a letter to this effect was filed with Mossack Fonseca (admitted by Hassan Nawaz). Maryam was also co-owner in Coomber Group, BVI company, through which a loan of £3.5m was secured from Deutsche Bank in June 2007. By not disclosing interests/assets/loans in offshore companies of Maryam Safdar, Nawaz Sharif and/or Mohammad Safdar in 2013 apparently violated section 12(2)(c)&(d) of the Representation of People Act 1976.
20. As far as asset declarations from 2011 to 2013 are concerned, Nawaz Sharif has been receiving huge gifts through remittances from Hussain Nawaz. Since he is not NTN-holder, the entire amounts become chargeable to tax under the Income Tax Ordinance 2001. Secondly, Hussain never showed these amounts in his UK returns. In other words, offshore accounts have apparently been used to send these funds.
21. S.No.14 of the ‘Nomination Form’ pertains to agricultural income tax, asks for last three years’ agricultural income and tax paid thereon and requires copies of the agricultural income tax returns to be attached as well. The returns attached by Nawaz Sharif indicate that these were also filed just before the filing of nomination papers, the details of which are as under:

Assessment Year	Due Date Under Rule (5) of the Punjab Agricultural Income Tax Rules, 2001	Date of filing of Return	Amount of tax paid with the return as required under Rule (4) of the Punjab Agricultural Income Tax Rules, 2001	Delay in Payment of Admitted Tax Liability as well as filing of Return
2012-13	30.09.2012	22.03.2013	1,195,497	6 Months
2011-12	30.09.2011	22.03.2013	715,250	18 Months
2010-11	30.09.2010	22.03.2013	734,000	30 Months

There was delay in the discharge of tax liability. Article 63(1)(o) takes care of default in payment of government dues of over Rs.10,000 over a period of 6 months. Tax of three years was paid on 22.03.2013 just before filing nomination papers, which attracts Article 62(1)(d), (e) and (f) of the Constitution.

22. Both in tax years 2011 and 2012, Nawaz Sharif showed salaried income from Chaudhry Sugar Mills in which he claimed 2,012,538 shares (valued at Rs. 16,000,000). It is also noteworthy that in Chaudhry Sugar Mills a loan of US$20 million was received from an offshore company established by a bank as per the statement of Governor State Bank (“does not belong to PM or family” – SBP Chief, Business Recorder, April 11, 2016).
23. As per income tax returns, Nawaz Sharif has been receiving income from Chaudhry Sugar Mills Ltd without rendering any services. It was just an arrangement to show some income tax payment. In substance, the company saved 35% tax by booking fake expense. Since he never rendered any services to the company, FBR was duty-bound to disallow this expense using section 108 and 109 of the Income Tax Ordinance 2001. But with Ishaq Dar controlling FBR, it is not surprising that no such action has been taken to date.

The Prime Minister is under both moral and legal obligations to explain the above, as well as sources of investment abroad by his children. Only he can provide such information since obviously nobody else possesses it. Since assets and liabilities have been declared by the Prime Minister in his nomination papers and the ownership of foreign assets and offshore companies has been admitted by his children and wife, they all must explain their details too.

The views expressed in this article are those of the author and do not necessarily represent the views of CourtingTheLaw.com or any organization with which he might be associated.