Finance Minister Shaukat Tarin resigned because of policy differences with the government on asking for more authority to crack down on tax evasion.

In an interview to Financial Times, the minister declined to comment on speculation that his departure was sparked by policy differences with the government. Prime minister Yusuf Raza Gilani had refused to give Tarin more authority to crack down on tax evasion, which has been a persistent problem for Pakistan.

But a source close to Mr Tarin said his departure “has to do with the government once again dragging its feet on a [tax] clampdown”.

“They just don’t understand. You can’t allow tax dodgers to go free. This is a massive setback for Pakistan’s economy,“ said the person.

Pakistan’s tax to gross domestic product ratio during the past financial year, which ended in June, was below 9 per cent – the lowest among south Asian economies, which include India, Sri Lanka and Bangladesh.

Shaukat Tarin, who is Pakistan’s finance minister until the end of one month, publicly announced his resignation today saying he needs to concentrate on personal banking interests, ending days of speculation over the political fate of the minister.
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Tarin told media that he had decided to step down to “give full-time attention to my bank”, referring to Silk Bank, a commercial bank in which he holds a 21 per cent stake.

In March 2008, a consortium comprising the International Finance Corporation, Bank Muscat, Nomura and Sinthos Capital, led by Tarin and another Pakistani banker, Sadeq Saeed, bought an 86.55 per cent stake in Silk Bank for about $213 million.

Yesterday, his resignation was mentioned in whispers during the meeting between prime minister Yousuf Raza Gilani and Mian Nawaz Sharif that Shaukat Tarin has resigned as finance minister.

Four candidates have emerged to succeed Tarin, including Makhdoom Shahabuddin, an influential politician from Sindh belonging to the ruling Pakistan People’s Party (PPP) and former junior finance minister and Ishrat Hussain, a former central bank governor and World Bank official. The others are Hafeez Pasha, a former commerce minister who worked for the United Nations Development Program, and Nasim Beg, a Karachi-based investment banker.

Tarin told media today he was returning to Silk Bank to help the bank raise capital as it prepared for a rights issue.

“In my position as finance minister, I will not be able to perform any role for the bank as any role of this kind will be a conflict of interest,” said Tarin, a former international banker with Citibank.