Tag: SBP

Tax amendments to generate great interest in govt securities: SBP

KARACHI: State Bank of Pakistan (SBP) on Thursday said that the tax amendment for foreign investors to generate great interest in government securities.

In a statement the central bank said that the tax amendments will help to deepen the capital market, generate greater interest in the longer-dated government securities, diversify the investor base, and reduce the cost of debt for the government.

Amendments in the Income Tax Ordinance, 2001 have been issued to simplify the tax regime for non-resident companies investing in debt instruments and Government securities.

The SBP said that these amendments aim to deepen our capital markets, support availability of long term rupee financing sources, support competition in the local currency debt market, and diversify the source of funding for the government.

The existing foreign exchange framework allows non-residents to invest in debt instruments and Government securities through Special Convertible Rupee Account (SCRA) maintained with banks in Pakistan.

However, the tax structure for non-residents investing in debt securities was historically complex. Different rates applicable for the withholding tax on profit on debt and capital gains tax, penal transaction charges for non-filers, a complex tax-filing process and uncertainty about tax applicability were the key impediments to foreign investment into the local debt market, particularly in the long-term debt instruments.

In this context, the recent amendment in the tax laws has simplified Pakistan’s tax regime for investment in the local debt market.

Specifically, the above Ordinance has implemented the following changes in Income Tax Ordinance, 2001 to simplify the tax regime for non-resident companies, having no permanent establishment in Pakistan, investing through SCRA in debt instruments and government securities (including Treasury Bills and Pakistan Investment Bonds):

The capital gains tax shall be subject to withholding at the rate of ten percent and shall constitute final discharge of the tax liability;

No deduction of 0.6% banking transaction tax under section 236P on transactions in SCRA;

No advance tax payment under section 147 on capital gains;
Dispensation from the requirement of registration under section 181, filing of return under section 114 and filing of statement of final taxation under section 115 in respect of income solely from capital gains or profit on debt from investment in debt securities;

No distinction shall be made in terms of filer or non-filer;

Many non-resident investors currently benefit from tax treaties and already enjoy reduced rates of taxation around 10 percent. The key provision in the ordinance is to simplify the tax structure and process for international investors.

January 2, 2020
SBP directs biometric verification of branchless banking accounts by March 31

KARACHI: State Bank of Pakistan (SBP) has directed financial institutions to ensure biometric verification of branchless banking customers by March 31, 2020.

In a circular issued on Tuesday directed all banks and microfinance banks to complete biometric verification of all level-1 accounts by March 31, 2020. In case biometric verification is not performed, the financial institutions shall convert all these accounts to Level – 0 with effect from April 01, 2020.

The transaction limits for Level – 1 accounts are as follow:

a. Rs. 50,000 per day [This limit shall not be applicable on: (i)credit from employers for salaried persons against proof of employment and (ii) payment to trusted merchants including schools and hospitals etc.]

b. Rs. 200,000 per month

The transaction limits for Level-0 accounts are as follow:

a. Rs. 25,000 per day

b. Rs. 50,000 per month

c. Rs. 200,000 per year

d. Rs. 200,000/- maximum balance limit

The financial institutions operating branchless banking are required to follow regulations related to Know Your Customer (KYC)/Account Opening requirements and conditions:

For Level-0 accounts:

a) Verification of customer identity from NADRA

b) Pre-screening the name and CNIC against proscribed/designated persons and entities as per the Statutory Notifications issued by Federal Government from time to time.

c) Call Back Confirmation or generation of One-Time Password (OTP) for verification in remote account opening.

For Level-1 accounts:

a) Biometric Verification of customer from NADRA

b) Pre-screening the name and CNIC against proscribed/designated persons and entities as per the Statutory Notifications issued by Federal Government from time to time.

c) Call Back Confirmation or generation of One-Time Password (OTP) for verification in remote account opening.

The SBP said that financial institutions shall keep all necessary record obtained through CDD measures, account files and business correspondence and results of any analysis undertaken, for at least ten years following the termination of the business relationship.

The central bank further said that the financial institutions shall ensure that documents, data or information collected under the CDD process is kept up to date and relevant, by undertaking reviews of existing records.

December 31, 2019
SBP updates guidelines related to UNSC resolutions

KARACHI: State Bank of Pakistan (SBP) on Tuesday updated guidelines for banks related compliance on notification issued under United Nations Security Council (UNSC) Resolutions.

The SBP issued circular addressing chief executives and presidents of banks, development financial institutions and microfinance banks, referring to the guidelines on Compliance of Government of Pakistan’s Notifications issued under United Nations Security Council (UNSC) Resolutions, issued vide BPRD Circular No. 03 of 2015 as amended from time to time.

The SBP said that in order to further enhance the understanding of Targeted Financial Sanctions regimes for Terrorism Financing and Proliferation Financing, under UNSC Resolutions, and to further align said regimes with the requirements embodied in FATF Recommendations, SBP has decided to update the subject guidelines.

December 31, 2019

SBP directs MFBs to ensure verification of customers

KARACHI: State Bank of Pakistan (SBP) on Tuesday issued orders to microfinance banks (MFBs) to ensure verification of customers in order to mitigate various risks arising from money laundering and financing terrorism.

A circular issued by the central bank referred it previous instructions issued through Circular No. 02 dated October 05, 2018 to mitigate various risks arising from money laundering and financing of terrorism.

As stipulated under Regulation M-1, ongoing Customer Due Diligence (CDD) is an essential aspect of effective KYC/CDD procedures and applies to all customers to whom the MFB is offering any type of service(s).

Accordingly, it is reiterated that MFBs must ensure strict observance of all applicable instructions including identification and verification of customers and their beneficial owner(s) and obtain information on the purpose and intended nature of business relationship.

The monitoring mechanism in place at MFBs should be adequately resourced and strengthened to ensure that the transactions being conducted in the accounts are consistent with the MFB’s knowledge of their customer, business, risk profile and the source of funds.

With the objective to know the ultimate beneficial ownership of accounts/ transactions, the MFBs shall enhance their efforts to obtain relevant information and examine background and purpose of all complex, unusual large transactions and unusual patterns of transactions, which do not commensurate with customer profile or have no apparent economic or visible lawful purpose.

MFBs are also advised to refer to the SECP Circular No. 16 of 2018 dated August 29, 2018 (https://www.secp.gov.pk/laws/circulars/) through which the Commission has directed all companies to enhance their efforts to obtain and maintain up-to-date information relating to their ultimate beneficial owners, i.e. natural persons or individuals who ultimately own or control the company.

Therefore, MFBs may also seek such ultimate beneficial ownership information from their relevant customers during the CDD process.

Moreover, with the view to further strengthen the measures already in place and mitigate the money laundering and terrorist financing risks, MFBs are advised to immediately take following steps:

a) Ensure optimal utilization of biometric technology and carry out biometric verification of the existing customers (if already not done) as per following timelines and thresholds:

Priority	Category of Customers	Threshold	Timeline
High Priority	Listed /Public Limited Companies	Account turnover exceeding PKR 1,000 million for any of the calendar year 2017, 2018 or for a period since January 1, 2019 to September 30, 2019.	31st January, 2020
Private Limited Companies	Account turnover exceeding PKR 500 million for any of the calendar year 2017, 2018 or for a period since January 1, 2019 to September 30, 2019.
All customers except Public/Private Limited Companies	Account turnover exceeding PKR 250 million for any of the calendar year 2017, 2018 or for a period since January 1, 2019 to September 30, 2019.
Medium Priority	Listed /Public Limited Companies	Account turnover from PKR 500 million to PKR 1000 million for any of the calendar year 2017, 2018 or for a period since January 1, 2019 to September 30, 2019.	31st March, 2020
Private Limited Companies	Account turnover from PKR 250 million to PKR 500 million for any of the calendar year 2017, 2018 or for a period since January 1, 2019 to September 30, 2019.
All customers except Public/Private Limited Companies	Account turnover from PKR 100 million to PKR 250 million for any of the calendar year 2017, 2018 or for a period since January 1, 2019 to September 30, 2019.
Normal	All other accounts not covered in the above categories	30th June, 2020

Note

Biometric verification of persons authorized to open and operate the account of legal entities or legal arrangements shall be conducted.

In case of customers whose eligible identity documents are other than biometrically verifiable documents, re-validation/ verification of identity shall be done based on documents, data or information obtained from customer and/or from reliable and independent sources having regard to MFB’s own assessment of materiality and risk.

Submit compliance status in respect of biometric verification of their existing/legacy portfolio of customers within 15 days of aforesaid timelines.

Furthermore, MFBs are advised to adhere to the following instructions regarding biometric verification of existing customers presently outside Pakistan:

	Type of Customer	Treatment
a)	Non-resident Pakistanis (NRPs) As defined in Income Tax Ordinance, 2001 – Chapter 5, Division II, Section 82	For customers who fall under the definition of NRP, the MFB may obtain a signed undertaking from the customer invariably containing the following: • Customer’s NRP status along with proof (i.e. copy of valid passport, visa, exit stamp, resident permit, etc.). • Copy of valid identity document. • Account number(s) of the customer’s account(s) maintained with the bank as per customer record. • Undertaking by the customer to inform the bank of any change in residency status. The MFB, after verification of the customer’s signature from its record, shall accordingly update/ reflect the NRP status in the customer profile. For such customers, as an alternative to biometric verification, the MFB may conduct fresh NADRA Verisys using the information provided by the customer.
b)	Resident Pakistanis temporarily outside Pakistan	For customers who do not qualify under the definition of NRP, but are currently/ temporarily outside Pakistan for any reason, the MFB may obtain reasonable evidence/ proof from the customer regarding his/ her absence from the country (i.e. copy of valid passport, visa, exit stamp, resident permit, etc.) and the expected date of return. For such customers, as an alternate to biometric verification, the MFB may conduct fresh NADRA Verisys using the information provided by the customer. The MFB may retain the NADRA Verisys in place of biometric verification until the customer returns, subject to reasonable time limit (not more than six months) to be defined by MFB. Biometric verification of such customers shall be done immediately upon the customer’s return to the country.
c)	Joint Accounts where one account holder is outside Pakistan (NRP/ temporarily)	For joint account holders, treatment of biometric verification should be done according to the status of respective individual. Biometric verification should be conducted for the joint account holder who is resident Pakistani, while for other joint account holders, the relevant procedure described at (a) and (b) above should be adopted.

Moreover, MFBs may operate accounts on the basis of NADRA Verisys in genuine cases, in line with Frequently Asked Questions (FAQ No. 8, Annexure – I) on Use of Biometric Technology, provided MFBs are satisfied and proper reason/ proof is recorded/ retained by them.

For such cases in line with Para-7 above, in the absence of biometric verification, MFB may ensure that requisite identification document has been obtained, marked as ‘original seen’ by their staff and verified through NADRA Verisys.

Moreover an undertaking should be obtained from the customer declaring that the particulars provided to the MFB are correct and that their staff has verified the same. The declaration should be endorsed by the Branch Manager and should be available in the bank’s centralized record.

December 31, 2019

SBP abolishes fee on tax payment through alternate delivery channels

KARACHI: The State Bank of Pakistan (SBP) has announced to abolish the fee on payment of government taxes and duties through Alternate Delivery Channels (ADCs) and Over-the-Counter (OTC) from January 1, 2020.

A statement issued on Saturday said that presently, the taxpayers pay Rs.10 to Rs.50 per transaction for payment of taxes through ADCs depending on the amount of tax paid, and Rs.50 per transaction for the payments through OTC.

This fee will be borne by SBP instead of taxpayers from January 1, 2020. The change has been notified through SBP FD Circular No.4 of 2019 dated December 27, 2019.

The decision is part of SBP efforts to promote digital payments and is likely to attract larger number of taxpayers towards digital payment of government taxes and duties.

The mechanism for online collection of taxes and duties was introduced in March 2018 in collaboration with Federal Board of revenue (FBR) with the primary objective of taxpayers’ facilitation. The tax payers can pay their taxes from the convenience of their homes or offices using internet/mobile banking facilities, through 14000 plus ATMs or any of the 15000 plus branches of commercial banks across the country. So far Rs.346 billion has been collected through this mechanism. The collections through the ADCs/OTC modes are likely to grow exponentially as the awareness about the mechanism improves.

SBP is also running an awareness campaign to familiarize the taxpayers, tax bar associations, chambers of commerce, clearing and forwarding agents and business community at large about the ADC and OTC payment mechanisms.

Seminars and awareness sessions are being arranged across the country through the field offices of SBP Banking Services Corporation. The first such seminar was held in Karachi on December 26, 2019, which was attended by corporate taxpayers, representatives from chamber of commerce, trade associations, commercial banks, tax bars and audit firms.

The participants appreciated SBP efforts for promotion of digital payments and said that such sessions are critically important for enhancing public awareness and allaying their fears and apprehensions about digital payments.

December 28, 2019
Bank holiday announced on January 01

KARACHI: The State Bank of Pakistan (SBP) on Friday declared bank holiday on January 01, 2020 on account of financial close of banking companies.

In a circular issued to presidents and chief executives of all banks, development financial institutions and microfinance banks, the SBP informed that the central bank will remain closed for public dealing on Wednesday, January 1, 2020, which will be observed as ‘Bank Holiday’.

All banks / DFIs / MFBs shall, therefore, remain closed for public dealing on the above date. However, all employees of banks / DFIs / MFBs will attend the office as usual, the SBP said.

December 27, 2019
Banks to observe extended working hours on Dec 31 to facilitate taxpayers

KARACHI: State Bank of Pakistan (SBP) on Friday announced that banks will observed extended working hours to facilitate taxpayers in payment of duty and taxes on December 31, 2019.

In order to facilitate the collection of government receipts / duties / taxes, it has been decided that authorized branches of National Bank of Pakistan (NBP) as well as field offices of SBP Banking Services Corporation (SBP-BSC) will observe extended banking hours up to 9:00 PM on December 31, 2019 (Tuesday).

Accordingly, NBP branches will settle their transactions with respective SBP-BSC field offices on the same day i.e. December 31, 2019 for which purpose a special clearing has been arranged at 7:00 P.M. by the NIFT.

All banks are, therefore, advised to keep their concerned branches open on December 31, 2019 (Tuesday) till such time that is necessary to facilitate the special clearing for Government transactions, the SBP said.

December 27, 2019
Pakistan’s weekly foreign exchange reserves slip by $60 million

KARACHI: The liquid foreign exchange reserves of the country slipped by $60 million to $17.595 billion by week ended December 20, 2019, State Bank of Pakistan (SBP) said on Thursday.

The foreign exchange reserves of the country were at $17.655 billion by week ended December 13, 2019.

The foreign exchange reserves held by the SBP increased by $15 million to $10.907 billion by week ended December 20, 2019 as compared with $10.892 billion a week ago.

The SBP said that on December 23, 2019, it received $452.4 million from International Monetary Fund (IMF) as second tranche under EFF program.

These funds will be part of SBP weekly reserves data as of December 27, 2019, to be released on January 02, 2020.

The foreign exchange reserves held by commercial banks fell by $75 million to $6.688 billion as against $6.763 billion a week ago.

December 26, 2019
SBP extends date for implementing machine authenticated Rs50 banknotes

KARACHI: State Bank of Pakistan (SBP) has extended the date for banks regarding issuance of machine authenticated Rs50 banknotes.

In a notification issued on Thursday, the central bank said that considering the difficulties faced by banks in machine processing of lower denomination banknotes under the Currency Management Strategy (CMS), it had been decided to extend the effective date for issuance of machine authenticate Rs50 banknotes until January 4, 2021.

The banks are however encouraged to gradually adopt machine processing and authentication of Rs50 banknotes.

Earlier, the banks were required to process lower denomination banknotes under the CMS from January 02, 2020.

The SBP on August 31, 2017 issued Currency Management System, which is as follow:

Considering the various aspects of implementation and feedback of the stakeholders, the following changes have been made in the strategy:

I. Sealed Cassettes based feeding of ATMs:

The instructions contained at section C (iii) of FD Circular No.03/2015 dated August 26, 2015 regarding use of standardized purpose built cassettes for feeding of ATMs shall stand amended as under:

a) The requirement of cassette based feeding of ATMs has been made optional for the time being. The banks are however encouraged to plan for gradual movement towards cassette based feeding to comply with our instructions. SBP will continue to monitor the situation on periodic basis for a policy decision.

b) The banks may alternatively use sealed bags or trays for feeding of ATMs. However the banks shall ensure that sealing and unsealing of bags/trays and replenishment of ATMs is carried out under proper CCTV controlled environment.

c) The on-site ATMs can be fed by their respective branches provided that the end to end process from cash processing to ATM feeding is covered by CCTV cameras.

d) Other requirements as advised under section C of FD Circular No.03/2015 dated August 26, 2015 shall remain applicable.

II. Application of Strategy on lower banknote denominations:

The instructions contained at section-I of FD Circular No.01/2016 dated January 25, 2016 regarding implementation of phase-II of strategy for all denomination of banknotes w.e.f. 2nd January 2018 shall stand amended as under:

a) The banks will start disbursing machine authenticated banknotes of Rs 100 w.e.f. 2nd January 2018 and Rs 50 w.e.f. 2nd January 2019 respectively.

b) The lower banknote denominations of Rs 20 and Rs 10 have been excluded from Currency Management Strategy.

III. Banknote Packing Instructions (BPI)

The Banknote Packing Instructions issued vide FD Circular No.02/2017 dated March 10, 2017 shall stand amended as under:

a) The effective date of instructions contained at section 1.2 and 1.3 of BPI has been extended from 3rd July 2017 to 1st December 2017.

The banks may deposit the cash processed and packed by other bank(s) with SBP BSC or offer the same in IEC. The earlier requirement that the cash processed and packed by the depositing bank can only be deposited with SBP BSC or offered for exchange in IEC shall stand withdrawn. However, in case of any discrepancy, the bank which has processed and packed the cash shall be responsible.

December 26, 2019
Concentration of banks’ shareholding to few families against good governance practices: SBP governor

KARACHI: Dr. Reza Baqir, Governor, State Bank of Pakistan (SBP) has said that concentration of banks’ shareholding to a few families and their nominees on the boards is against the good governance practices.

Dr. Reza Baqir, Governor, State Bank of Pakistan during his inaugural address in a seminar on “Emerging Trends in Good Governance of Banking Sector” in SAARC countries highlighted the importance of efficient and robust governance structure in the banking industry for sustainable economic growth of a country, said a statement issued by the central bank on Tuesday.

He said that concentration of banks’ shareholding to a few families and their nominees on the Boards is against the good governance practices and may adversely impact the effectiveness of the Board.

Besides Pakistan, the seminar was attended by delegates from Afghanistan, Bangladesh, Bhutan, Sri Lanka and Nepal.

While addressing to the participants from SAARC member countries at National Institute of Banking and Finance (NIBAF), Islamabad, Dr. Baqir said that corporate governance is corner stone for the success of any business entity.

However, for financial institutions, the importance of corporate governance becomes even more critical as banks are highly leveraged entities facing a wide range of risks in their day-to-day operations.

Therefore, the scope and approach to banks’ corporate governance requires a different and specific regulatory framework not only because of their leveraged business model but also due to diverse ownership and group structure.

Dr. Baqir emphasized that boards of the banks with more gender diversity or female representatives and diversified experience in the fields of IT, risk management, finance and economics can play a more effective role in achieving the organization’s overall strategic objectives.

Dr. Baqir further added that independent directors play an important role in banks by exercising their independent judgement and protect the interest of minority shareholders. He also mentioned that corporate governance practices in public sector banks are generally weak and less transparent due to likely political intervention in the affairs of these banks.

Therefore, there is a need to rationalize the shareholding structure of these banks to minimize the undesirable role of governments in their affairs. Remuneration practices of Board members and compliance of AML/ CFT regime are also significantly important areas where the Boards need to assume enhanced responsibilities to meet the international best practices.

He also cited few of SBP’s efforts such as Guidelines on Performance Evaluation of Board of Directors, Enterprise Technology Governance & Risk Management Framework, Governance Framework for Banks’ Overseas Operations, Compliance Risk Management and Internal Audit Function Guidelines and Streamlining the existing regulatory requirements on remuneration of Boards and management.

In his closing remarks, he suggested that Terms of reference (ToRs) of SAARCFINANCE network may be revisited to align the same with emerging challenges being faced by central banks in the region. He further added that expanding business arenas, globalization of financial activities, emergence of new financial products and increased level of competition have not only opened up opportunities but also increased the potential risks from such developments.

Therefore, such regional forums are very helpful in facilitating knowledge exchange and ongoing collaboration for resolution of region specific issues posing potential risks to the banking sectors in SAARC countries.

The event was also attended by Dr. Ishrat Husain, Adviser to Prime Minister on Institutional reforms and Austerity and Ms. Tania Adruis, Head of Digital Pakistan Initiative. Both the keynote speakers emphasized upon further strengthening the culture of good corporate governance to achieve the desired strategic objectives.

The second day of the seminar largely focused on governance practices in the SAARC region wherein foreign delegates and SBP presented their respective country practices in the subject area.

December 25, 2019