The Federal Board of Revenue (FBR) in Pakistan is now scrutinizing the source of foreign remittances when the inward transfer exceeds Rs10 million to a recipient in a year.
This move has raised questions about the origins of substantial sums of money being transferred into the country.
Officials within the FBR have revealed that this scrutiny is a result of a significant decision made through the Finance Act of 2018, aimed at monitoring and regulating the inflow of foreign exchange by obtaining sender information. This initiative led to an amendment of Section 111 of the Income Tax Ordinance, 2001, which is now in effect.
Under the newly implemented provision, tax authorities have the authority to inquire about the source of any foreign exchange exceeding ten million rupees remitted from abroad through regular banking channels during a tax year. Additionally, this foreign exchange must be converted into rupees by a scheduled bank, and a certificate from the bank confirming this conversion must be produced.
Prior to this amendment, the inflows of remittances remained unchecked, essentially providing a permanent amnesty to undocumented funds. This practice had long been a point of contention for various stakeholders, who believed it allowed for the easy whitening of black money or money that had not been properly documented.
The FBR’s latest regulation marks a significant shift in this approach, with a renewed focus on transparency and accountability for substantial foreign remittances. This change will apply to money transfers made between July 1, 2018, and June 30, 2019, which will be the first tax year subject to questioning by the FBR.
Experts in the financial sector have welcomed this development, as it addresses a long-standing issue and strengthens the country’s financial regulatory framework. It is believed that the new regulations will have a positive impact on the overall financial health of the country and help curb the illicit flow of money.
This initiative by the FBR not only aims to ensure that foreign remittances are legitimate and have a documented source but also to enhance transparency in the banking sector. By requiring certificates from scheduled banks for the conversion of foreign exchange into rupees, the government can keep a closer eye on money entering the formal banking system.
It is worth noting that this change is in line with global efforts to combat money laundering and the financing of terrorism. Many countries have been adopting stricter measures to monitor and regulate the flow of funds across borders, and Pakistan is now following suit with its own set of regulations.
The FBR’s efforts to scrutinize the source of large foreign remittances are expected to have a positive impact on the country’s tax revenues. By bringing previously unchecked funds into the tax net, the government can potentially collect more revenue, which can be used for various development projects and public services.
However, there are concerns that the new regulations may discourage some overseas Pakistanis from sending money through official banking channels, potentially leading to a rise in informal and unregulated remittances. To address this, it is essential for the government to strike a balance between enforcing the new regulations and providing incentives for individuals to use legal and transparent channels for their remittances.
As the FBR begins to implement these regulations, there will likely be increased transparency and accountability in the flow of foreign remittances into Pakistan. This marks a significant step toward curbing illicit financial activities and ensuring that funds entering the country are legitimate and properly documented.
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