Pakistan is likely to relax the limit to disclose foreign exchange in local currency under tax laws after experiencing a significant depreciation in the local currency over the past few years.
According to sources in the Federal Board of Revenue (FBR), the limit to declare the source of the sender for foreign remittance equivalent to or above Rs5 million received during a tax year is expected to be enhanced. This comes after the limit was reduced from Rs10 million through Finance Act, 2019.
The current limit of Rs5 million was set when the exchange rate was 1$=158 rupees in 2019. This means that an inflow of foreign currency equivalent to $31,645 in a year was liable to disclose the source. However, due to the significant depreciation of the Pakistani Rupee during the past three years, the limit has shrunk significantly. The current exchange rate is 1$=283, which means that Rs5 million is equivalent to $17,668.
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Under Pakistan tax laws, foreign remittances are exempt from income tax. However, in order to discourage exempt inflows other than blood relatives, the government had put a condition of disclosure about the sender of the money. This move had helped the country to stop money laundering incidences, which were a major reason for Pakistan being placed on the grey list of the Financial Action Task Force (FATF) for many years.
It is important to note that the disclosure of foreign exchange is not intended to discourage genuine foreign remittances that are sent by overseas Pakistanis to support their families or to invest in their home country. Instead, it is aimed at discouraging illicit inflows of foreign currency that may be linked to money laundering or terrorism financing.
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The proposed relaxation of the limit to disclose foreign exchange is expected to make it easier for overseas Pakistanis to send money to their families without facing unnecessary hurdles. At the same time, the FBR has assured that it will continue to monitor foreign remittance inflows to ensure that they are legitimate and not linked to any illegal activities.
In conclusion, the proposed relaxation of the limit to disclose foreign exchange in local currency is a positive step towards facilitating genuine foreign remittances while continuing to deter illicit inflows of foreign currency. It is important that the government maintains a balance between facilitating genuine remittances and ensuring that the country’s financial system is not used for illegal activities.
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