ISLAMABAD: As transfer of dollars abroad through banking channels peaked to $2 billion last year due to a lax 1992 law, Senator Saleem Mandviwalla has moved a Bill to withdraw unprecedented immunities enjoyed by foreign currency account holders.
However, State Bank of Pakistan has opposed the former finance minister’s “the Protection of Economic Reforms (Amendment) Bill 2016”, saying, “The proposed law appears inspired by India”. Contrary to the central bank’s take on a serious parliamentary business, India’s foreign currency regime is said to be one of the best in the world, according to independent legal and tax experts.
Senator Mandviwalla, elected on a PPP ticket, has moved the Bill after the federal government backtracked from its announcement to review all the existing laws that allowed people to transfer money abroad and evade taxes.
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The proposed amendments have taken care of genuine foreign currency account holders and are seeking to cut the benefits of only those who are transferring billions of dollars abroad without any check.
Senator Mandviwalla has proposed that authorised dealers in Pakistan banks, shipping and airlines companies, insurance companies, exporters of goods and services, students studying abroad and visitors abroad may keep and operate foreign currency accounts.
He has suggested that all other individuals and entities should not hold foreign currency accounts, as these have become main source of transferring money abroad and evading taxes.
Reasoning behind the Bill
Mandviwalla moved the Bill in the Senate on October 3. The Senate Chairman has now sent the proposed piece of legislation to the Senate Standing Committee on Finance for discussion and voting. The Bill was on the agenda of the standing committee that met Tuesday under the chair of Mandviwalla.
“Millions of dollars are transferred on a daily basis abroad through foreign currency accounts opened under Economic Reforms Act (PERA) of 1992 and nobody asks any question about the purpose of these transactions,” said Mandviwalla while explaining the rationale behind these amendments.
He said that a branch of a private commercial bank in Peshawar was found transferring $20 million a day in 2013 from non-business accounts.
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The PML-N government had enacted the PERA in 1992 that, according to legal and tax experts, was the root cause behind most fiscal crimes committed today. It has become evident now that the drafters of the 1992 law wanted to favour someone while enacting the PERA, said Senator Mohsin Aziz of the PTI.
According to data provided by the central bank in August this year to a parliamentary committee, from 2013 through 2015, Pakistanis have sent $5.7 billion abroad through their foreign currency accounts. During 2010-2011, $1 billion was sent abroad through foreign currency accounts (FCAs), which increased to $1.2 billion during 2011-12. During 2012-13, the figure jumped to $1.9 billion, and was recorded at $2 billion by the end of 2015, according to the central bank.
Senator Mandviwalla has proposed amendments into section 4 and section 5 of the 1992 law. Under section 4, he has proposed that only authorised dealers, foreign branches, of Pakistani banks, shipping companies, airlines, insurance corporations incorporated in Pakistan and their subsidiaries, students, exporters and foreign visitors can open these accounts.
Mandviwalla has also proposed to replace section 5 that grants immunity from enquiry by tax department, immunity from wealth tax, income tax, zakat deduction, and allows the banks to keep the information of these account holders secret, with a new section.
“All other individuals and entities may become ineligible to open and maintain foreign currency accounts within and outside Pakistan,” if these amendments are accepted, according to a written response of the SBP submitted to the standing committee. It further added that a question may also arise as to the legality of the existing foreign currency accounts.
“The proposed law appears inspired by India,” according to the central bank’s written comment that Senate Secretariat reproduced in a brief circulated among the committee members. The SBP further noted that no amendments were required in the law.
The PERA of 1992 prescribes no limit on funds transfer through foreign currency accounts to and from Pakistan on an individual, according to central bank officials. They said money can even be transferred without the permission of the central bank.
The SBP officials said FCAs are not exempted from income tax and the Federal Board of Revenue can question pver taxes paid on the money deposited in these accounts. However, FBR Member Policy Rehamtullah Wazir informed the committee that the banks were not providing information about foreign currency account depositors.
Courtesy : Express Tribune