Properties of Pakistanis in Dubai


In 2019 when I was the Chairman of Federal Board of Revenue (FBR) I asked my Director General International Taxation to collect the data of persons holding ‘Iqamas’ of the United Arab Emirates so we can ensure their tax compliance in Pakistan.

There was complete non-cooperation by the UAE Government and I had to backtrack. The revelation of Dubai properties by a Pakistani by the name of Dubai Leaks is a very satisfactory moment for me for the reason that I am fully aware of the fact that it is one of the most favourite parking lots for corruption and untaxed money for our countrymen in the UAE. Unlike other jurisdictions, it provides good living facilities along with a non-transparent OR opaque regulatory environment.

Many rich Pakistanis do not consider Pakistan as their destination. For them it is only a place to earn, rightly or wrongly, but not to invest or spend. In May 2024, the market capitalization of Pakistan Stock Exchange is USD 23 billion whereas the market capitalization of BSEIndia (formerly Bombay Stock Exchange) is USD 4.5 trillion.

The reported investment of Pakistanis is USD 11 billion whereas Indians own only around USD 17 billion. This means that Pakistanis have more confidence in investment in bricks and mortar in the UAE than industries in Pakistan. The percentage of investment viz-a-viz PSX value is 47%, whereas in India it is 0.037% for investment in Mumbai.

After these revelations there are repeated statements by the relevant persons that such properties are declared in Pakistan’s tax records. I have dealt with two Asset Declaration Laws in Pakistan in 2018 and 2019 and it is my estimate that the amount declared will not be more than 25% for various reasons. Furthermore, it is important to note that this data represents the properties acquired in the names of individuals in Pakistan.

It does not include properties held in the names of companies incorporated in the UAE and outside the UAE, which are beneficially owned by Pakistanis. As per my estimate, the total amount will be around USD 20 billion.

I have repeatedly stated that Pakistan’s foreign exchange regulations from 1992 to 2018 in the form of the Protection of Economic Reform Act, 1992 have eroded the financial strength of Pakistan. Prior to this law the money held outside Pakistan was not the money sent from Pakistan; it was the corruption money earned and kept outside Pakistan.

After this obnoxious Act a substantial part is the money sent from Pakistan. In other words, these are our hard earned export USDs. The story of Pakistanis’ assets outside Pakistan is briefly described in the following paragraphs.

When Pakistan came into existence it was an un-industrialised country. We were the product of the Imperial world; therefore, under the Bretton Wood institutions the US and her allies decided to industrialize the country to the extent that does not hamper their own economic interests. Accordingly, they provided long-term foreign currency financing to the Pakistan government for industrialisation.

This money was doled out to Pakistani businessmen through Pakistan Industrial Credit & Investment Corporation of Pakistan (PICIC). In addition, there were projects of the government-owned institutions such as Pakistan Industrial Development Corporation (PIDC).

The funding from PICIC was used for acquiring plants and machinery from suppliers outside Pakistan. There used to be direct payment to the supplier of the plant by PICIC and the loan amount was booked in the name of the borrower. It is now an open secret that there was a commission on the acquisition of such plants ranging from 5 to 10%, which was placed by the supplier in Switzerland in the name of Pakistani businessmen through our expert bankers based in London and New York.

There was a nominal share of bureaucrats due to which the most important government servant used to be Secretary Industries who was supposed to issue licences for every new industry. Some of these loans were repaid from the income of the industries whilst others became bad and PICIC ultimately wound up as a bankrupt entity. Comparatively, ICICI is one of the best financial institutions in India. The foreign currency assets of Pakistan, held outside Pakistan prior to 1974, in substance are the accumulations out of such commission.

When Zulfikar Ali Bhutto came to power the same demand came from the next group of exploiters and the same story was repeated in National Development Finance Corporation (NDFC) and Bankers Equity Limited (BEL). They were second tier generations of accumulators of commissions outside Pakistan. The point I want to emphasise is that in this case there was no outward flow of USD from Pakistan; it was the commission held outside Pakistan.

By the 1980s during Gen Zia’s regime there was a huge accumulation of corruption and untaxed money as USD was flowing in for the Afghan War. Furthermore, commissions were accumulating outside Pakistan, which were required to be brought for a new wave of industrialisation after the sentiments of nationalisation had died down.

In order to cater for that, various methods were introduced in the law to deregulate the foreign exchange regime and Pakistan may be the only country where all kinds of money is considered ‘Kosher’ if the same is remitted from outside Pakistan. Two windows were opened to send the money outside Pakistan and bring back the same as ‘Kosher’.

This was the biggest economic crime that could have been committed with a nation. Ultimately, that wrong system was properly legislated by the name of ‘Protection of Economic Reforms Act, 1992’. It remained as law from 1992 to 2018, when it was amended after the Panama Leaks. For thirty six years there was effectively no foreign exchange law in the country.

Accordingly, a very high amount out of our hard earned USD was purchased by people for acquiring properties and assets outside Pakistan. This is how the money got transferred. The Pakistan government and regulators are so careless that there used to be road shows of properties in the UAE in big cities in Pakistan with the offer that one can get an apartment in the UAE by paying the company in Pakistani rupees. Nobody bothered to ask how that money will be transferred to the UAE. Obviously, the State Bank of Pakistan was not involved.

For a person like me, these revelations do not matter. It was fully known to me as a professional and as the Chairman of FBR. However, our hands were tied. The second element in this respect is the declaration of rent earned on such properties in Pakistan.

There is a view that such rent is not taxable on account of an interpretation of the Agreement for Avoidance of Double Taxation between the UAE and Pakistan. I have written a detailed article on that matter for this newspaper. I do not subscribe to that view.

Those who consider that there would be some direct tangible results of these revelations are not fully aware of the capability and capacity of our taxing authorities. However, as stated by me at the time of the Panama Revelations, this is a blessing in disguise for Pakistan for the reason that the UAE had created a non-transparent environment that suited unscrupulous people in Pakistan for hiding their undisclosed wealth.

Now that environment and confidence have shattered. There is a need for further revelations of companies ultimately beneficially owned by the Pakistanis whether tax resident in Pakistan or otherwise, which own properties and businesses in the UAE.

Copyright Business Recorder, 2024


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