Probe into use of gift scheme for money laundering

ISLAMABAD: A select group of wealthy Pakistanis is reported to have laundered Rs102 billion during the ongoing fiscal year by describing the money as “gift”.

Under the existing laws, gifts are exempt from taxes and a large number of individuals with high net worth are using the option as a safe means of transferring incomes, assets and wealth without contributing to the national revenue, according to a top tax official.

The official said that 2,785 people might have laundered money by declaring it “gifts” received from their parents, siblings or spouses, who were either out of the tax net or had no known source of income.

The cases involving money laundering through “gift back arrangements” were unearthed during scrutiny of tax returns filed by the wealthy individuals last year. It was found that income was declared in many returns, but taxes paid on the incomes were nominal.

The wealth statements of the individuals showed their net assets running into hundreds of millions of rupees, and even higher in some cases.

The Anti-Money Laundering (AML) cell of the Intelligence & Investigation-Inland Revenue has initiated investigations against the identified people, who put assets worth millions of rupees in the gift category while filing their returns, according to the official.

The data collected by the AML cell revealed that 2,785 rich individuals declared receipt of gifts worth Rs102bn in their wealth statements in the tax year 2016.

In three of the cases, individuals declared gifts of Rs1bn and above, with the biggest amount of gift received being Rs1.7bn.

As many as eight individuals declared gifts worth between Rs1bn and Rs500 million.

In the third category, 97 individuals declared gifts worth between Rs500m and Rs200m. Likewise, 97 people declared having received gifts worth Rs200m to Rs100m, while 280 individuals declared gifts of between Rs100m and Rs50m in their wealth statements.

A total of 2,348 people declared gifts worth Rs50m to Rs10m.

A tax official said the AML cell was now scrutinising these cases to determine whether the expensive gifts came from legitimate sources or not.

The cell would also examine the duly reported and taxed incomes of the individuals who “gave the gifts” and whether or not it was just another way of deceiving the tax authorities.

The tax official, however, said that not all the cases analysed so far involved wrongdoing. In several cases the gifts were found to be genuine, having been given by individuals of high net worth to members of their family after paying taxes.

The official said that during preliminary investigations of the returns, it was observed that in many cases the net assets gradually increased in wealth statements over only a few years, without there being any taxable income behind the accretion.

In such cases, the reconciliation of net assets from previous years is reached through claims of expensive gifts as inflows, without disclosing any details about how and from where such gifts were obtained.

“This practice raised suspicion that this may be just another way of avoiding payment of taxes through misreporting of sources of income,” the official said, adding that the AML cell also flagged these cases to determine if the “gift back arrangement” was being employed to launder the tax-evaded incomes.

In cases where it is found that a “gift back arrangement” has been employed with the intention to evade tax, the assets of the individuals concerned can be confiscated under the Anti-Money Laundering Act 2010.

Moreover, criminal references can be filed in the Special Court of Customs & Taxation.

Laundering the proceeds of tax evasion through schemes such as “gift back arrangements” are liable to punishment with rigorous imprisonment of up to 10 years, along with heavy fines as well as forfeiture of the properties involved.