In a significant development, the Federal Board of Revenue (FBR) has introduced an amendment through the Finance Bill, 2023, indicating that it may not scrutinize foreign inflows up to $100,000 in a year.
This move seeks to streamline the process and reduce the burden on individuals receiving foreign remittances.
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The amendment, which modifies Section 111 of the Income Tax Ordinance, 2001, now exempts foreign remittances up to $100,000 from being questioned by the FBR. Previously, individuals receiving foreign remittances equivalent to Rs5 million (approximately $31,645) were required to disclose the source of the sender.
Sources within the FBR have revealed that the threshold for declaring the source of the sender for foreign remittances equal to or exceeding Rs5 million in a tax year has been raised. This adjustment comes after the threshold was lowered from Rs10 million in the Finance Act, 2019.
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The initial limit of Rs5 million was established in 2019 when the exchange rate stood at 1$=158 Pakistani rupees. Consequently, any inflow of foreign currency equivalent to $31,645 in a year required the disclosure of the source. However, due to the significant depreciation of the Pakistani Rupee over the past three years, the limit has now decreased substantially. With the current exchange rate at around 1$=283, Rs5 million is now equivalent to $17,668.
Under existing Pakistani tax laws, foreign remittances are exempt from income tax. However, in an effort to discourage undisclosed inflows unrelated to blood relatives, the government introduced the requirement for disclosure regarding the sender of the funds.
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This measure played a crucial role in combating money laundering, which had been a major factor behind Pakistan’s inclusion on the grey list of the Financial Action Task Force (FATF) for an extended period.
It is important to note that the disclosure of foreign exchange is not intended to discourage legitimate foreign remittances sent by overseas Pakistanis to support their families or invest in their home country. Instead, the focus lies on deterring illicit inflows of foreign currency that could be associated with money laundering or financing terrorism.
By raising the threshold for questioning foreign inflows, the FBR aims to strike a balance between ensuring financial transparency and facilitating legitimate transactions. This move is expected to benefit individuals who receive foreign remittances, reducing their administrative burden while maintaining the necessary safeguards against illegal activities.
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The amendment aligns with the government’s ongoing efforts to streamline tax procedures, promote economic growth, and enhance the ease of doing business in Pakistan.
The revised regulations are set to provide clarity and instill confidence among individuals involved in international transactions, creating a favorable environment for both investors and overseas Pakistanis who contribute significantly to the country’s economy.
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Overall, the FBR’s decision to raise the threshold for questioning foreign inflows demonstrates a proactive approach in combating illicit financial activities while ensuring a supportive environment for legitimate remittances and investments.
