The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has recently put forward a recommendation for a dollar amnesty scheme to address the issue of exchange rate volatility in the country.
In its proposals for the upcoming budget 2023-2024, the FPCCI highlighted the detrimental effects of the fluctuating rupee-dollar parity on the economy, including threats to essential commodity imports and industrial raw materials.
To alleviate the uncertainty prevailing in the market, the FPCCI suggests implementing measures to encourage the transfer of dollar holdings from personal safes and lockers to bank accounts. Additionally, they propose exempting such deposits from taxes if they have not been previously declared, while offering a small profit incentive upon withdrawal in Pakistani rupees.
Exchange Rate Volatility Impacts Economy:
The FPCCI has drawn attention to the adverse consequences of exchange rate volatility on the Pakistani economy. The unpredictable fluctuations in the rupee-dollar exchange rate have created chaos and rumors in the market. This situation has put many factories at risk of closure and has led to difficulties in meeting production schedules and export deadlines. To mitigate these challenges, the FPCCI emphasizes the need for measures that can restore stability and alleviate the negative impact of exchange rate volatility.
Incentive Scheme to Channel Dollar Holdings:
To tackle the issue of dollar holdings being kept outside the banking system, the FPCCI proposes the introduction of an incentive scheme. This scheme would encourage individuals to transfer their dollar holdings from personal safes and lockers into bank accounts. By bringing these funds into the formal banking sector, it would enhance transparency and contribute to the stability of the economy. The FPCCI recommends exempting these deposits from taxes if they have not been declared previously in tax returns. Furthermore, they suggest offering a 1% or 2% profit incentive upon withdrawal of the Pakistani rupee from these accounts.
Reforming the Tax System for Economic Growth:
The FPCCI highlights the current inadequacies in Pakistan’s tax system, which contributes less than 10% to the country’s GDP. They argue that the heavy reliance on indirect taxation and surcharges has hampered economic growth. The tax policies need to be revised to support businesses in diversifying overseas markets, competing internationally, and attracting foreign investments. The FPCCI emphasizes the importance of macroeconomic stability for sustained and inclusive development.
Improving Tax Administration:
To generate the desired revenue from the existing tax system, the FPCCI recommends reviewing outdated laws and rates. They emphasize the need for an efficient administrative machinery equipped with well-trained and motivated personnel. The FPCCI calls for harmonizing taxation objectives with other industrial and macroeconomic goals. They also emphasize the importance of transparency and accountability in managing tax revenues for the benefit of the country and its citizens.
Industrial Amnesty Scheme:
In addition to tax reforms, the FPCCI suggests the introduction of an industrial amnesty scheme to encourage investment and economic growth. The scheme would allow the industry to declare previously undisclosed assets without questioning the source of income. This move aims to bring hidden assets into the formal economy, boost economic activities, and generate employment opportunities. By widening the tax base through the inclusion of undeclared assets, the government could alleviate the fiscal crisis and increase revenue.
The FPCCI’s proposals for a dollar amnesty scheme and tax reforms address critical issues affecting Pakistan’s economy. By incentivizing the transfer of dollar holdings into the banking system, promoting tax reforms, and introducing an industrial amnesty scheme, the government can promote economic stability, attract investments, and generate sustainable growth. It is crucial for policymakers to consider these recommendations to address exchange rate volatility, strengthen the tax system, and foster a conducive environment for business and investment in Pakistan.