Activist Judge Torpedoes Tax Collection Project in Pakistan
In yet another egregious example of increasing judicial activism, Islamabad High Court's Justice Shaukat Aziz Siddiqui, the judge who also ordered Musharraf's arrest, has suspended Pakistan's top tax collector Arshad Hakeem. Hakeem was working on an ambitious technology-based project to go after powerful tax dodgers in the country.
In a country where the rich and the powerful pay little or no tax, Ali Arshad Hakeem became "a hated man" in just seven months after his appointment as FBR chairman, according to a report in the UK's Telegraph newspaper. Coming from IT and business management background Hakeem put in place a database designed to monitor the spending habits of millions of people, and calculate how much tax they owed.
At the click of a mouse, he could look up details of the elite's holiday habits, electricity bills and bank accounts, complete with photos, addresses and vehicle details, said the newspaper.
By linking government databases on cars, imports, exports and sales tax among others, he built a powerful tool for the Federal Board of Revenue (FBR) that could identify individuals and companies which were not paying their fair share. For income tax, his team fed 1,700 factors into a model which calculated how much was owed.
Pakistan tax-gdp is among the lowest and its tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin. The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their income on their basic needs.
Hakeem's efforts to change the situation and collect from the rich and powerful came to a grinding halt last month when Justice Siddiqui suspended Mr Hakeem for alleged violations of appointment rules.
Other damaging examples of economic judicial activism include cancellation of Pakistan Steel Mills privatization, annulling of Reko Diq mining contract and voiding of rental power deals with foreign investors.
Since the cancellation of Pakistan Steel Mills privatization deal in 2006, PSMC has suffered huge losses that cost the taxpayers tens of billions of rupees--Rs 26.5 billion in 2009, Rs 11.5 billion in 2010, Rs 11.4 billion in 2011 and Rs 21 billion in 2012. Had Prime Minister Shaukat Aziz's government been allowed to proceed with privatization in 2006, the PSMC would have been a significant contributor to the national exchequer rather than a huge drain on the public treasury. The money saved could have been used to fund education, healthcare, energy and infrastructure projects in the country.
Similarly, the Supreme Court has intervened and scared away foreign investors by its decisions in Reko Diq and Karkey rental power company. Had Reko Diq been allowed to continue, it would have represented a huge $3.3 billion foreign investment in Pakistan's Balochistan region.
Umar Cheema, a journalist and author of the report that showed how few politicians pay tax, told Telegraph's Rob Crilly that anyone attempting reform risked being brought down. "He made people realize the FBR was doing something under his watch, even though he was not there for very long" he said.
Related Links:
Haq's Musings
Tax Evasion in Pakistan
Pakistan's Best Tax Collector Fired by PPP Govt
Vindictive Judges Pursue Musharraf
Saving Education in Pakistan
Political Patronage Trumps Public Policy
Twin Energy Shortages in Pakistan
Prime Minister Shaukat Aziz's Legacy
By linking government databases on cars, imports, exports and sales tax among others, he built a powerful tool for the Federal Board of Revenue (FBR) that could identify individuals and companies which were not paying their fair share. For income tax, his team fed 1,700 factors into a model which calculated how much was owed.
Pakistan tax-gdp is among the lowest and its tax policies are among the most regressive in the world. Direct taxes make up less than 3.5 percent of GDP, with wide ranging exemptions to powerful segments of society coupled with governance issues at Federal Board of Revenue, according to former finance minister Shaukat Tarin. The bulk of the tax receipts are collected in the form of sales tax, placing the heaviest burden on the lower-income people who spend almost all of their income on their basic needs.
Hakeem's efforts to change the situation and collect from the rich and powerful came to a grinding halt last month when Justice Siddiqui suspended Mr Hakeem for alleged violations of appointment rules.
Other damaging examples of economic judicial activism include cancellation of Pakistan Steel Mills privatization, annulling of Reko Diq mining contract and voiding of rental power deals with foreign investors.
Since the cancellation of Pakistan Steel Mills privatization deal in 2006, PSMC has suffered huge losses that cost the taxpayers tens of billions of rupees--Rs 26.5 billion in 2009, Rs 11.5 billion in 2010, Rs 11.4 billion in 2011 and Rs 21 billion in 2012. Had Prime Minister Shaukat Aziz's government been allowed to proceed with privatization in 2006, the PSMC would have been a significant contributor to the national exchequer rather than a huge drain on the public treasury. The money saved could have been used to fund education, healthcare, energy and infrastructure projects in the country.
Similarly, the Supreme Court has intervened and scared away foreign investors by its decisions in Reko Diq and Karkey rental power company. Had Reko Diq been allowed to continue, it would have represented a huge $3.3 billion foreign investment in Pakistan's Balochistan region.
Umar Cheema, a journalist and author of the report that showed how few politicians pay tax, told Telegraph's Rob Crilly that anyone attempting reform risked being brought down. "He made people realize the FBR was doing something under his watch, even though he was not there for very long" he said.
Related Links:
Haq's Musings
Tax Evasion in Pakistan
Pakistan's Best Tax Collector Fired by PPP Govt
Vindictive Judges Pursue Musharraf
Saving Education in Pakistan
Political Patronage Trumps Public Policy
Twin Energy Shortages in Pakistan
Prime Minister Shaukat Aziz's Legacy
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Nawaz Sharif, Pakistan’s new prime minister, will appoint private sector managers to run state companies in efforts to revive an economy starved of investment, say leaders of his party.
Mr Sharif, who has been prime minister twice before, launched a similar policy in 1997 when he appointed commercial bankers to run three large public sector banks. All three became profitable and two, Habib Bank and United Bank, were privatised.
The plan faces a backlash from trade unions. Mr Sharif’s aides compared the process to the privatisations in the UK by Margaret Thatcher after she became prime minister in 1979.
Sartaj Aziz, former finance and foreign minister and a leader of Mr Sharif’s Pakistan Muslim League-Nawaz, told the Financial Times: “The formula is simple. You appoint good people, you allow them to appoint their people and you empower them. The government helps wherever it can.”
Officials said Ishaq Dar, a confidant of Mr Sharif, would take up his former post of finance minister in the new government.
Final results have yet to be declared but business leaders have welcomed a vote that will probably allow Mr Sharif, a wealthy Punjabi steel magnate, to have an absolute majority in parliament without the need for coalition partners.
Investors in Pakistan said they were tired of grappling with power cuts of up to 20 hours a day, widespread corruption in public life and an inefficient public sector. Mr Sharif has identified rescuing the economy as his number one priority.
A central bank official said public sector companies in power, rail transport and aviation run up huge losses each year amounting to more than 2.5 per cent of gross domestic product. “These are clearly white elephants,” he said.
Mian Muhammad Mansha, the Lahore-based owner of a Pakistani conglomerate who is reputed to be the country’s richest man, approvingly quoted a reference to Thatcher as a “modern Joan of Arc” and said Pakistan needed structural reforms similar to hers.
“First you need to get all these public sector companies out of government control,” he said. “This will release so much money that they are losing and it will make politics clean.”
The 1997 bank plan saw Mr Sharif’s government dismiss some 20,000 employees who were all given large redundancy payments. The current reform plan may meet resistance not only from unions but from politicians who are used to arranging contracts for their businesses from public sector companies.
“Mr Sharif will have to keep his own politicians under control if he wants his plan to succeed. In the past, many have thrived on patronage,” said Suhail Jehangir Malik, an economist. “Public sector companies are a huge drain on our national economy. Reforming them must be a primary objective for the new government.”
The plan is likely to win support from international donors, including the International Monetary Fund, which is expecting to begin negotiations shortly on a new $9bn loan to stave off a balance of payments crisis. Pakistan’s foreign reserves are equivalent to the value of two months of imports.
“The problem with Pakistan is both macroeconomic weakness and long-term structural issues,” said one person involved in preliminary talks with the interim government in power over the election period. “Given the severity of the economic problems, we do need to have a government that is going to undertake quite serious economic reforms.”
Under a so-called extended fund facility of up to four years, Pakistan would be expected to cut its budget deficit by increasing tax revenues, directing subsidies more accurately towards the poor and introducing policies to encourage foreign direct investment.
http://www.ft.com/intl/cms/s/0/374bc1a6-bbe8-11e2-a4b4-00144feab7de.html
The possibility of Pakistan seeking assistance from China is emerging after the government was slapped with a $5.95 billion fine in a legal dispute over rights for a copper and gold mine in the country.
Tethyan Copper had filed a case against Pakistan with the International Court for Settlement of Investment Disputes in 2012 for violating an agreement that the company signed with Pakistan for exploration and mining of the Reko Diq mine.
The court issued its decision in 2017 in favor of Tethyan Copper, a joint venture between Barrick Gold of Canada and Antofagasta Minerals of Chile, with hearings continuing to determine the amount of damages to be paid by Pakistan. On Saturday, the court announced that the government of Prime Minister Imran Khan must pay a total fine of $5.9 billion -- a $4.08 billion penalty and $1.87 billion in interest.
Legal experts say Pakistan cannot appeal the court's decision and that it can only apply for technical review, whereby the government can ask the court to review the amount of damages. That process could take up to three years, which would offer Pakistan more time before the fine is due.
The amount of damages Pakistan has been ordered to pay is nearly equal to the recently approved bailout package from the International Monetary Fund.
The damages also are twice the amount of Balochistan's annual budgeted expenditures, which means Pakistan in all likelihood will have to look quickly for payment options. One of the strongest options, according to analysts, is its northern neighbor: China.
Reko Diq sits in Pakistan's southwest Balochistan province, at the triangular border with Iran and Afghanistan. The mine has gold reserves with an estimated value of more than $100 billion.
Work at Reko Diq has been suspended since 2011, when Pakistan rejected the application of Tethyan Copper to mine the area. Before that, Pakistan and Tethyan Copper agreed that the company would conduct a feasibility study under an exploration license and that it would apply for a mining license to carry out the mining.
The board chairman of Tethyan Copper, William Hayes, has said that his company is ready to enter a settlement for a mutually beneficial solution with Pakistan. That could pave the way for a third party like China to help settle the case.
"Given the ever-growing domestic consumption of gold in China and Beijing's interest in investing in gold and copper mining industries abroad, I won't be surprised if China makes a bid to take over the Reko Diq gold mine project and offers to pay the penalty in return for long-term lease and exclusive ownership rights," said Mohan Malik, a professor at the Asia-Pacific Center for Security Studies in Hawaii.
http://theconversation.com/world-bank-ruling-against-pakistan-shows-global-economic-governance-is-broken-120414
The International Centre for the Settlement of Investment Disputes was established in 1966 as part of the World Bank Group. The centre oversees arbitrations between foreign companies and states in a process known as the investor-state dispute settlement (ISDS).
ISDS is hugely controversial for a variety of reasons ranging from the secrecy of the hearings to the substantial costs associated with defending a claim and the ability of corporations to challenge health and environmental measures.
The case that cost Pakistan $5.8 billion did not revolve around such measures but rather the decision of a provincial government to backtrack on a sweetheart deal that had been offered to a mining firm, allegedly the result of corruption. Leaving the merits of the case to one side — it is difficult to assess the tribunal’s reasoning when the award isn’t public, after all — let’s take a closer look at the payout.
According to the mining company — Tethyan Copper, partially owned by Canada’s Barrick Gold — it spent US$220 million on exploration activities before things went south. One might argue that a fair outcome, if the government was solely to blame, would be for the award to cover these sunk costs. Instead it was more than 25 times that amount. That is because the tribunal chose to award the company “lost future profits” from the project.
Arbitrators don’t have crystal balls. They don’t know what the value of a mineral will be in a year, let alone 30 years. And they are lawyers, not market analysts. So how do they decide how much profit a firm would have made in a hypothetical alternative future?
The answer is, partially, that they rely on “experts” brought in by each of the parties to the dispute. These experts provide a best guess for what they think a project is worth. International law scholar Robert Howse calls this “junk science.”
Unsurprisingly, the state’s expert often provides a low-ball estimate for the value of a project and the investor’s expert gives an inflated value. Faced with this discrepancy, arbitrators will often choose to go down the middle and pick an arbitrary value. Tethyan Copper had originally sought more than US$11 billion in damages, suggesting that the tribunal in this case may have taken this approach.
https://www.barrick.com/English/news/news-details/2022/reko-diq-alliance-between-pakistan-and-barrick-set-to-create-long-term-value/default.aspx
Subject to the updated feasibility study, Reko Diq is envisaged as a conventional open pit and milling operation, producing a high-quality copper-gold concentrate. It will be constructed in two phases, starting with a plant that will be able to process approximately 40 million tonnes of ore per annum which could be doubled in five years. With its unique combination of large scale, low strip and good grade, Reko Diq will be a multi-generational mine with a life of at least 40 years. During peak construction the project is expected to employ 7,500 people and once in production it will create 4,000 long-term jobs. Barrick’s policy of prioritizing local employment and suppliers will have a positive impact on the downstream economy.
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ISLAMABAD, PAKISTAN – Finance Minister Miftah Ismail and Barrick president and chief executive Mark Bristow said after their meeting here today that they shared a clear vision of the national strategic importance of the Reko Diq copper-gold project and were committed to developing it as a world-class mine that would create value for the country and its people through multiple generations.
Reko Diq is one of the world’s largest undeveloped copper-gold deposits. An agreement in principle reached between the government of Pakistan, the provincial government of Balochistan and Barrick earlier this year provides for the reconstitution and restart of the project, which has been on hold since 2011. It will be operated by Barrick and owned 50% by Barrick, 25% by the Balochistan Provincial Government and 25% by Pakistani state-owned enterprises.
The definitive agreements underlying the framework agreement are currently being finalized by teams from Barrick and Pakistan. Once this has been completed and the necessary legalization steps have been taken, Barrick will update the original feasibility study, a process expected to take two years. Construction of the first phase will follow that with first production of copper and gold expected in 2027/2028.
“During the negotiations the federal government and Barrick confirmed that Balochistan and its people should receive their fair share of the benefits as part of the Pakistan ownership group,” Bristow said.
“At Barrick we know that our long-term success depends on sharing the benefits we create equitably with our host governments and communities. At Reko Diq, Balochistan’s shareholding will be fully funded by the project and the Federal Government, allowing the province to reap the dividends, royalties and other benefits of its 25% ownership without having to contribute financially to the project’s construction or operation. It’s equally important that Balochistan and its people should see these benefits from day one. Even before construction starts, when the legalization process has been completed we will implement a range of social development programs, supported by an upfront commitment to the improvement of healthcare, education, food security and the provision of potable water in a region where the groundwater has a high saline content.”
Finance Minister Ismail said the development of Reko Diq represented the largest direct foreign investment in Balochistan and one of the largest in Pakistan.
“Like Barrick, we believe that the future of mining lies in mutually beneficial partnerships between host countries and world-class mining companies. The Reko Diq agreement exemplifies this philosophy and also signals to the international community that Pakistan is open for business,” he said.
https://www.reuters.com/markets/asia/pakistans-court-endorses-settlement-with-barrick-gold-over-mining-project-2022-12-09/
Pakistan's Supreme Court endorsed on Friday a settlement for Barrick Gold (ABX.TO) to resume mining at the Reko Diq project, one of the world's largest underdeveloped sites of copper and gold deposits, it said in an order.
The endorsement was a condition of the settlement for Barrick to resume work on the project in the southwestern province of Balochistan, bordering Afghanistan and Iran, in which it will invest $10 billion.
Chief Justice Umar Ata Bandial, the head of a five-judge panel, read out the operative part of the brief order in court.
"The agreements ... have not been found by us to be unconstitutional or illegal on the parameters and grounds spelt out," read the order seen by Reuters.
President Arif Alvi had asked the court to review the deal.
In an out of court agreement this year, Barrick Gold ended a long-running dispute with Pakistan, and agreed to restart development.
Under the deal, the company withdrew its case in an international arbitration court, which had slapped a penalty of $11 billion on Pakistan for suspending the contracts of the company and its partners in 2011.
The company's licence to mine the untapped deposits was cancelled after the Supreme Court ruled illegal the award granted to it and its partner, Chile's Antofagasta (ANTO.L).
Antofagasta had agreed to exit the project, saying its growth strategy was focused on production of copper and by-products in the Americas.
Pakistan's mineral-rich province of Balochistan is home to both Islamist militants and separatist Baloch insurgents, who have engaged in insurgency against the government for decades, demanding a greater share of the region's resources.
https://english.almayadeen.net/articles/analysis/pakistan-is-sitting-on-a-gold-mine
The Reko Diq mine, renowned for its massive gold and copper deposits, is thought to contain the fifth-largest gold deposit in the world.
Reko Diq is a small desert village in the Balochistan district of Chagai, 70 kilometers northwest of Naukundi and close to Pakistan's border with Iran and Afghanistan. This region is situated within the Tethyan belt, which extends from Turkey and Iran to Pakistan. Reko Diq, which in Balochi means "sandy mountain," is also the name of an extinct volcano.
The Reko Diq mine, renowned for its massive gold and copper deposits, is thought to contain the fifth-largest gold deposit in the world. The mine is in a small desert area in the northeast of Balochistan, near the border with Iran and Afghanistan.
600,000 tons of concentrate produce an estimated 200,000 tons of copper and 250,000 ounces of gold on a yearly basis. The annual profit from the mines is estimated by the TCC to be approximately $1.14 billion for copper and $2.50 billion for gold, totaling $3.64 billion annually. Independent estimates suggest the number is as high as $500 billion, which is significantly higher than the TCC's estimation of $200 billion.