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  • FBR to get real-time data of financial transactions

    FBR to get real-time data of financial transactions

    ISLAMABAD: Federal Board of Revenue (FBR) will get real-time data of financial transactions of the banking system by end of this year.

    According to the minutes of the meeting chaired by the prime minister last month, it is decided that Ministry of Law and Justice in consultation with State Bank of Pakistan (SBP) to propose necessary amendments in banking laws/ regulations for ensuring real-time data sharing of financial transactions with the Federal Board of Revenue (FBR).

    The law division and SBP have been tasked to finalize the proposal by December 31, 2019.

    The meeting considered the adoption of Computerized National Identity Card (CNIC) as common identifier.

    The meeting discussed that data consolidation and documentation of economy is a key responsibility of all public and private sector organizations such as financial institutions, utility companies etc.

    CNIC, as common identifier needs to be adopted by all public and private sector entities for documentation of economy and real time sharing of transactions data with the FBR.

    In the same context commercial utility connections have still not been brought into the tax net with rampant tax evasion in vogue.

    The meeting decided that CNIC would be adopted as common identifier by June 30, 2020 akin to social security number in western countries for all business transactions.

    It is also decided that the Ministry of Law and Justice in consultation with SBP to propose necessary amendments in Banking Laws / Regulations for ensuring real-time data sharing of financial transactions with the FBR.

    The meeting decided that by November 30, 2019 the commercial electricity and gas connections must be brought into the tax net immediately.

    The FBR has been given task to bring all commercial electricity and gas connections into the tax net.

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  • SBP suggests FBR to shift tax payments to electronic channels

    SBP suggests FBR to shift tax payments to electronic channels

    KARACHI: State Bank of Pakistan (SBP) has recommended the Federal Board of Revenue (FBR) to shift the collection of tax payments to electronic channels and enable taxpayers to use transaction accounts provided by any Payment Service Provider (PSP) to pay their taxes.

    The SBP suggested this in its National Payment System Strategy (NPSS) launched on Friday.

    The SBP said that private business entities are responsible for paying the vast majority of tax payments to the government.

    The process for filing tax returns has been automated and appears to be working relatively well.

    The process for making tax payments is neither automated nor electronic. Further, as mentioned earlier in 2018, SBP worked with FBR, Pakistan Customs and the government to leverage on the interface developed by Pakistan Revenue Automation Private Limited (PRAL).

    The FBR is urged to give high priority to shifting the collection of tax payments to electronic channels and enable tax payers to use transaction accounts provided by any regulated PSP to pay their taxes.

    Specific comment and recommendation is as follows:

    Shift the collection of tax payments to electronic channels and enable tax payers to use any transaction account provided by any regulated PSP to pay their taxes.

    The SBP said that two types of taxes — sales and income taxes — account for the bulk of the revenue collected by the Pakistani government, 70 percent of the total. The sales tax, which is a value-added tax (VAT), is the top revenue generator.

    The income tax, also known as the direct tax, generates nearly as much in tax revenue as the sales tax. Notably, at this point, virtually all individual income tax payers are employees of firms with five or more employees, whose employers withhold and submit their (the employees’) tax payments on their behalf.

    The FBR is responsible for the collection, processing and recording of virtually all tax revenue collected in the country. The other is the NBP, which together with the SBP, are the only entities in Pakistan that can collect tax payments from the public on the behalf of the federal government.

    PRAL has aggressively pursued the modernization of tax collection starting with the automation of tax processing and, most recently, the establishment of an efficient and user-friendly means for individuals and entities to file their taxes electronically. Last year SBP worked with FBR, Pakistan Customs and GoP to leverage on the interface developed by PRAL. Taxpayers can electronically generate PSID of the goods declaration through the WeBOC system of Pakistan Customs.

    Non-Tax Revenue Payments to the Government– B2G & P2G

    However, other non-tax collections for both federal and provincial governments of non-tax revenue (including fees and fines) is the most decentralized and varied of all the revenue collection processes. Each government agency or entity is on its own when devising means to transition from cash to electronic collection of the payment of fines and fees, and manual to electronic recording and reconciliation of the payments.

    Government transition to and use of electronic means to disburse and collect funds serves a variety of purposes. However, the use of electronic payments by the government is a necessary but not a sufficient condition to achieve these positive outcomes.

    The achievement of the efficiency, cost and transparency gains to the government depends, in part, on the degree of cooperation and coordination of approaches across government agencies and levels of government, and the degree to which government payment processing is fully automated and integrated with the national payment system.

    Factors outside the control of the government payment management authorities also can constrain or support the achievement of the potential gains to the government.

    The Government of Pakistan has made significant progress in transition to electronic payments, however, several additional measures could be taken to enhance the benefits of the transition.
    Recommendations

    • Foster adoption of electronic payments by all government entities: Encourage and support an acceleration of transition to electronic payments by all government entities at all levels of government

    • Provide/offer technical assistance to government entities: Support the transition to electronic payments throughout the government, including exempted government agencies and other levels of government, by providing technical assistance.

    • Address infrastructure weakness: Fill the gap in the nation’s payment infrastructure by adding ACH functionality

    • Consider the potential role of shared government payment platform(s): Explore the possibility of developing a shared government payment platform(s) to achieve efficiency across all government agencies and levels of government, and provide a range of options with regards to means of payment collection and distribution

    • Enhance quality and reach of payment points of access: Explore options to expand the availability and enhance the reliability of payment access points to facilitate the use of transaction accounts made available to G2P recipients and electronic P2G and B2G payments

    • Focus on payment product design: Prioritize payment product design when developing mechanisms to deliver or collect payments from individuals and business entities

    • Offer payment options: Strive to offer individuals and business entities flexibility and choice with regards to the transaction account and payment instrument they will use to receive payments from and/or make payments to the government

    • Avoid use of single purpose accounts and instruments: When necessary offer a payment instrument coupled with a government payment program, avoid single purpose instruments and those that offer only limited interoperability with other retail payment instruments and services

    Detailed Recommendations by Payment Program Type

    Government Salary Payments

    The key strength of government salary payment programs is success of the AGPR in transitioning the employees whose salaries they pay via electronic payments; the weaknesses include the relative lack of progress in transitioning most of the government employees, all of whom are paid via other government salary payment programs. Specific comments and recommendation are as follows:

    • Consider allowing government / SBP employees to deposit their salaries directly into Branchless Banking accounts

    • The SBP should address the absence of automated clearinghouse (ACH) functionality in the financial system as soon as possible

    • The AGPR may want to consider allowing employees to deposit their salaries directly into a Branchless Banking account

    • Other exempted federal government agencies and provincial / district / local governments could be strongly encouraged to transition to electronic salary payments

    • Collaboration across the government on transition to electronic salary payments could both encourage and support the transition of a broader range of government salary payment

    • Greater emphasis on the accessibility of access points, their convenience and reliability will be important to efforts to foster the use of the transaction accounts to which salaries are deposited

    Government Employee Pension Payments

    The transition of government pension payments to electronic channels lags well behind that of salary payments. AGPR continues to pay pension payments in cash and require that pensioners use NBP as their pension disbursement agent. Government pensions paid by other government entities, such as the military, and by other levels of government, such as the provincial governments, are no further along in pension payments to electronic channels then they are in transitioning salary payments. Specific comments and recommendation are as follows:

    • Collaborate within the government to identify critical payment instruments and account features for government pensioners

    • Develop and provide guidance on protecting pensioners from financial fraud and abuse associated with their pension payments, including payment stream lending

    Social Benefit Payments

    Both BISP and EOBI, are now in the process of transitioning to a new electronic payment program. However, neither program appears to include design elements to leverage the payment programs to foster financial inclusion and, in specific, enhance access and use of transaction accounts.

    Together, these two programs – the BISP and EOBI — account for G2P payments to more recipients than all the other G2P programs combined. In addition, these social benefit programs reach some of the poorest residents of Pakistan. As such, they can play an important role in advancing inclusion in the country. In this regard, it is notable that transaction account ownership and use is considered a critical step toward broader financial inclusion. Specific comments and recommendation are as follows:

    • Consider means to mitigate the impact of biometric payment cards and the related need to upgrade ATMs and POS devices with fingerprint readers, and provide convenient locations where BISP recipients can conduct electronic payments with their BISP cards

    • Consider means to strengthen the impact of electronic social benefit payments on financial inclusion, by focusing on the design features of the transaction accounts and payment instruments made available to the recipients via the payment program

    • Consider allowing recipients to choose from amongst the PSPs, the type of transaction account they would like to use to receive their payment

    • Collaboration across government agencies and PPMs could reduce the cost and enhance the quality of each social benefit payment program

    Government to Business Payments

    Paper instruments, cash and cheques, remain the primary means of payment by the government to business entities. The absence of ACH functionality in Pakistan is believed to be the primary hurdle to shifting these payments to electronic instruments, including direct deposit. Specific comments and recommendation are as follows:

    • Once ACH functionality is available, support efforts of government agencies and levels of government to shift payments to business entities to electronic channels

    • Encourage government agencies/levels of government to adopt electronic G2B payment processing systems that enable business entities to choose the transaction account to which they want their funds deposited

    Government Tax Revenue Collection

    Private business entities are responsible for paying the vast majority of tax payments to the government. The process for filing tax returns has been automated and appears to be working relatively well. The process for making tax payments is neither automated nor electronic. Further, as mentioned earlier in 2018, SBP worked with FBR, Pakistan Customs and GoP to leverage on the interface developed by PRAL.

    The FBR is urged to give high priority to shifting the collection of tax payments to electronic channels and enable tax payers to use transaction accounts provided by any regulated PSP to pay their taxes. Specific comment and recommendation is as follows:

    • Shift the collection of tax payments to electronic channels and enable tax payers to use any transaction account provided by any regulated PSP to pay their taxes.

    Government Non-Tax Revenue Collection

    Non-tax revenues are collected by a wide variety of government entities. Many of these entities are likely to lack the technical knowledge, staff resources, and payment policy expertise to develop or select payment collection mechanisms that are efficient, meet their needs and meet the needs of those making the payments. Specific comment and recommendation is as follows:

    • Explore means to provide technical assistance to government entities that collect non-tax payments from the public and business entities

    • Foster collaboration across the relevant government entities to facilitate the efforts of each to develop appropriate payment collection mechanisms

    • Consider offering workshops to

  • SBP issues regulations for banks to open accounts of retail merchants

    SBP issues regulations for banks to open accounts of retail merchants

    KARACHI: State Bank of Pakistan (SBP) on Friday launched rules and regulations for allowing banks to open bank accounts for retail merchants on soft conditions.

    According to objectives of regulations issued by the central bank, to outline minimum due diligence requirements for on-boarding merchants based on simplified due diligence process.

    Further, to facilitate in on-boarding merchants at various financial services access points and channels. To promote digital collection of payments from the sale of goods and services.

    The SBP said that these regulations are applicable on Banks/MFBs, which may on-board individuals and self-employed merchants as per their institutional risk assessment framework.

    The SBP said that banks/Microfinance Banks (MFBs) shall formulate merchant on-boarding policy in line with these regulations and duly approved the same from their board.

    These regulations are not applicable on existing onboarding process of full-fledged merchants and Banks/MFBs shall onboard full-fledged merchants as per applicable laws and regulations.

    The SBP said that banks/MFBs may offer these merchants accounts as Current, Savings or in any other remunerative category in Pak Rupees to individual and self-employed merchants only.

    The banks/MFBs shall ensure that one CNIC holder can open only one merchant Account in a
    Bank/MFB. The Banks/MFBs shall ensure that Merchant Accounts are only used for digital collection of payments against the provision of legitimate goods and services.

    In order to open on-board merchant accounts, banks/MFBs shall collect following information in manual or digital form from merchants at the time of account opening:

    i. Name of the merchant
    ii. Valid CNIC number of the merchant
    iii. Mobile number of the merchant
    iv. Any other two information fields that are not present on CNIC such as place of birth and mother’s maiden name etc.
    v. Address
    vi. Merchant Type (by Profession)
    vii. Expected per month turnover

    Banks/MFBs shall activate Merchant Accounts after fulfilling following KYC/CDD requirements of merchant:

    i. Perform Biometric Verification or Verisys from NADRA. In case of NADRA Verisys, Biometric Verification shall be mandatory at the time of first cash out or within three months of opening of these accounts, whichever is earlier. These accounts shall be deactivated if Biometric Verification is not carried out within three months of opening of accounts.

    ii. Ensure Pre-screening of merchants’ particulars against lists of entities and individuals designated by the United Nations Security Council (UNSC), lists of entities and individuals proscribed under the Schedule-I and Schedule IV of the Anti-Terrorism Act, 1997, respectively, and any other applicable sanctions lists.

    iii. Conduct Call Back Confirmation or generate One-Time Password (OTP) for verification from merchants.

    iv. Carry out full or Enhanced Due Diligence of merchant as per Banks/MFBs own risk assessment, in light of applicable laws and regulations (if applicable).

    v. Acceptance of terms and conditions of account provided in English and/or Urdu language by the merchant.

    The SBP also notified following transactions limits for the accounts:

    a) Banks/MFBs shall place following maximum transaction limits on merchant accounts:

    i. Rs. 50,000 per month without Biometric Verification

    ii. Rs. 500,000 per month with Biometric Verification

    b) The above Transaction limits will be separately applied on Debit and Credit transactions.

    c) Banks/MFBs may place lower transaction limits keeping in view their institutional risk assessment and high-risk geographical locations of merchants.

    Merchant Account Balance

    a) Banks/MFBs shall ensure that merchant accounts balance shall not exceed the following limits at any point of time:

    i. Rs. 50,000 without Biometric Verification

    ii. Rs. 500,000 with Biometric Verification

  • Pakistan’s forex weekly reserves decrease

    Pakistan’s forex weekly reserves decrease

    KARACHI: Pakistan’s total liquid foreign exchange reserves decrease by $96 million to $15.089 billion by week ended October 25, 2019 as compared with $15.186 billion a week ago, State Bank of Pakistan (SBP) said on Thursday.

    The reserves held by the SBP increased by $22 million to $7.914 billion by week ended October 25, 2019 as compared with $7.892 billion a week ago.

    The reserves held by commercial banks, however, fell by 118 million to $7.175 billion by week ended October 25, 2019 as compared with $7.293 billion a week ago.

  • SBP allows banks to accept electronic warehouse receipts as collateral for financing

    SBP allows banks to accept electronic warehouse receipts as collateral for financing

    KARACHI: State Bank of Pakistan (SBP) has allowed banks to accept electronic warehouse receipts as collateral for lending against storage of agriculture produce and commodities, said a statement on Thursday.

    The central bank said that Warehouse Receipt Financing (WHRF) is a mechanism whereby farmers, traders and processors may avail financing facility from banks while collateralizing their produce and agricultural commodities as a security stored in accredited warehouses. WHRF would benefit small farmers who usually find it difficult to access credit from banks due to non-availability of agricultural land as collateral.

    “Further, WHR financing would provide liquidity to commodity market and help in improving food security and price stability.”

    It said that the SBP and the government are proactively seeking innovative methods and measures to improve institutional financing to agri-sector and rural population, particularly the small farmers.

    For this purpose, Securities & Exchange Commission of Pakistan (SECP), in consultation with key stakeholders including the State Bank of Pakistan, notified the Collateral Management Companies (CMC) Regulations 2019 on July 31, 2019, under the Companies Act 2017 to promote warehouse receipt financing and electronic trading of agricultural commodities.

    Under these regulations, any private entity can form a collateral management company which would accredit warehouses to store agricultural commodities and issue warehouse receipts eligible for banks loans.

    It is expected that the development of a collateral management and warehouse receipt system would improve access to formal credit, reduce the losses arising from wastage of agricultural commodities after harvest, increase farmers’ profitability due to better price discovery and reduce risks of banks by allowing agricultural commodity as an alternate collateral.

    Going forward, this system would also facilitate trading of agricultural commodities at commodity exchanges opening new business avenues in national and international commodity markets.

    Further, development of the entire eco system would encourage investors to set up warehouses of high standards for which State Bank’s refinance scheme for setting up storage facility is already available.

  • SBP identifies shortfall in collateral obtained by Silkbank

    SBP identifies shortfall in collateral obtained by Silkbank

    KARACHI: State Bank of Pakistan (SBP) has identified shoartfall in collateral against financial facilities granted by Silkbank Limited.

    According to information share with Pakistan Stock Exchange (PSX) on Thursday, Silkbank said that the SBP in its latest inspection of the bank, identified a shortfall in collateral against certain financial facilities granted by the bank.

    “In compliance with the SBP requirements, the bank has obtained additional collateral, equivalent to identified shoartfall, details of which have been provided to SBP,” the bank said.

    The central bank has required the bank to assess the value of the additional collateral obtained, the bank added.

    Silkbank informed that in order to fulfill the valuation requirement, SBP had further given the option to delay the quarterly financial statements, as of September 30, 2019, of the bank, till the conclusion of the said valuation process so that the financial statements reflect the full impact of additional collateral obtained.

    “The bank has therefore, sought time from SBP, till December 15, 2019, for the conclusion of the evaluation process and publishing of the quarterly financial statements, as of September 30, 2019, of the bank.”

    The 170th meeting of the Board of Directors being in session on October 30, 2019, for review and approval of third quarterly accounts for the period ended September 30, 2019, has therefore, been concluded accordingly.

  • About 7.65 million bank accounts still require biometric verification for AML/CFT compliance

    About 7.65 million bank accounts still require biometric verification for AML/CFT compliance

    KARACHI: Around 7.65 million bank accounts are still unverified till June 30, 2019. The verification of bank accounts is mandatory through biometric system in order to mitigate risks of money laundering and terror financing.

    (more…)
  • State Bank incurs Rs506 billion exchange loss in 2018/2019

    State Bank incurs Rs506 billion exchange loss in 2018/2019

    KARACHI: The State Bank of Pakistan (SBP) incurred a net exchange loss of Rs506.13 billion during fiscal year 2018/2019 as against exchange loss of Rs72.28 billion during the preceding fiscal year, according to annual financial statement of the central bank released on Wednesday.

    The central bank said that the exchange gains/ (losses) arise on FCY assets and liabilities of the bank.

    Major part of the foreign currency assets of the Bank are USD denominated whereas the foreign currency liability exposure is mainly SDR and USD denominated.

    Accordingly, the movement in the PKR/ SDR and PKR/USD exchange rates directly affects the exchange account.

    The bank incurred a net exchange loss of Rs 506,131 million during FY19 as against exchange loss of Rs 72,280 million during FY18.

    The PKR depreciated against USD by Rs 38.56 and Special Drawing Rights (SDR) by Rs 80.82; accordingly, the net exchange loss increased significantly during the year.

    Due to significant exchange losses, the SBP incurred net loss of Rs 1,043 million (consolidated) in the FY 19 as compared to a profit of Rs175,673 million in the FY 18.

    The decline is primarily attributed to exchange loss of Rs 506,131 million during the current year as compared to exchange loss of Rs 72,280 million in previous year.

    The SBP said that the decrease was, however, partly offset by increase of Rs 254,351 million in the net interest income.

    The lending to the Federal Government remained the major source of SBP’s profit followed by earnings on the Open Market Operation (OMO) injections.

    These major income streams are offset by the increase in interest expense on liquidity mop-up from domestic financial market and increase in interest expense on international deposits.

    The expenses also witnessed a growth of 5 percent during the year. The note printing charges and General administrative and other expenses are the major expense heads that witnessed growth while agency commission paid to agent commercial banks for undertaking government banking business on behalf of the Bank witnessed slight decrease during the year.

    The interest / markup income of the central bank increased by Rs 331,471 million to Rs 646,009 million, registering an increase of over 105 percent.

    The borrowings by the Government from SBP during FY19 remained the major sources of income of the Bank during the year. The discount/interest income earned on lending to the Federal Government increased by 171 percent due to increase in volume of borrowing as well as increase in interest rate.

    The interest earned on lending to commercial banks through OMO injections decreased by 41 percent due to smaller volumes of liquidity injections during the year.

    The income on FCY assets registered 6 percent increase during the year. Although, foreign exchange reserves reduced significantly during the year; however, the return on the reserves increased due to hike in the international interest rates.

    The interest earned on refinance facilities to priority sectors increased to Rs 11,945 million in FY19 from Rs 10,232 million in FY18 primarily due to increase in lending to banks under various refinance schemes.

    The Bank incurred interest/ markup expense on FCY and domestic liabilities. FCY liabilities include deposits of international organizations and central banks, International Monetary Fund and currency swap arrangements.

    The domestic interest/markup bearing liabilities include repurchase transactions and sukuks purchased under Baimuajjal agreement. The interest/ markup expense witnessed a rise of Rs 78,922 million primarily due to increase in expense on repurchase transactions by Rs 46,830 million.

    Further, FCY deposits increased during the year which resulted in additional expense of Rs 23,141 million.

  • Tax collection from salary income plunges by 43pc: State Bank

    Tax collection from salary income plunges by 43pc: State Bank

    KARACHI: The income tax collection from salary income has witnessed sharp decline of 43 percent during fiscal year 2018/2019 due to significant concession granted in the budget of election year.

    State Bank of Pakistan (SBP) in its annual report on State of Pakistan Economy 2018/2019, revealed that withholding income tax fell 43 percent to Rs76.4 billion in 2018/2019 as compared with Rs133.4 billion in the preceding fiscal year.

    The overall collection of withholding taxes declined by 8.2 percent to Rs960.7 billion in the fiscal year 2018/2019 as compared with Rs1,047 billion in the preceding fiscal year.

    Besides, collection of income tax from salary the collection of withholding tax from telephone also witnessed steep fall of 64 percent. The Federal Board of Revenue (FBR) collected Rs17.2 billion during fiscal year 2018/2019 as compared with Rs47.4 billion in the preceding fiscal year.

    The collection of income tax from contracts witnessed 17 percent decline to Rs234.7 billion during the last fiscal year as compared with Rs283 billion in the preceding fiscal year.

    The SBP said that the decline in withholding taxes, having a share of nearly 65.0 percent in direct taxes, came from prominent reductions in the collection from salaries, contracts, cash withdrawals, and telephone.

    “While collection from salaries took a hit from concessions on income tax granted in the FY19 budget, the decline in PSDP spending lowered the collection from Contracts.”

    The composition of direct taxes is quite suboptimal reflecting lack of sufficient tax effort, the SBP said.

    The government relies heavily on withholding taxes, which downplays the role of revenue authorities.

    Furthermore, when these taxes are treated as final and are passed on to final consumers, they gain properties of indirect taxes. Despite a large tax machinery, comprising regional tax officers, nearly 64.1 percent of the income tax is collected via withholding agents such as banks, telecom companies, utility companies and car dealers.

    As for voluntary payments and collection on demand, their contribution is quite minimal. And even within the voluntary payments, around 90 percent collections are made in the form of advance tax; less than 10 percent comes through return filing.