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June 19, 2019

Foreign Exchange Management Accounts: FBR for replicating Indian model


June 19, 2019

ISLAMABAD: Terming Indian model as good to replicate Foreign Exchange Management Accounts (FEMA) in case of Pakistan, Chairman FBR Shabbar Zaidi said that $40 billion was remitted out from Pakistan, so there was need to bring changes in existing Pakistani laws related to management of foreign exchange.

He pointed out that Pakistan Economic Reform Act (PERA) and Foreign Exchange Regulation Act (FERA) were contradictory and there was need to move towards replicating Indian model FEMA in Pakistan. He said that the remitting out $40 billion in last 40 years, there was no tax on coming in and going out of foreign currency that is good but it should not be allowed to use as loophole to evade due taxes.

“We want to move towards abolishing Pakistan Economic Reform Act (PERA) which was abandoned in 1998 but it was again revived through presidential ordinance in 2001-2 by Musharraf regime,” Zaidi said before the Standing Committee on Finance which met under chairmanship of Senator Farooq H Naek on Tuesday.

The debate on foreign exchange management triggered as the FBR proposed through finance bill 2019-20 for reducing the limit from Rs 10 million to Rs 5 million through remittances for raising questions about source of income after filing of income tax returns. The FBR proposed to slash down this threshold in a bid to comply with Financial Action Task Force (FATF) requirements.

The FBR’s Member Dr Hamid Ateeq Sarwar said that the FBR’s section 111 (4) allowed remittances without raising any question but the FBR inserted powers in 2016 for asking source of remittances to the limit of Rs10 million per annum. Now this threshold limit, he said, proposed to bring down from Rs 10 million to Rs 5 million.

The Chairman FBR Shabbar Zaidi said that the State Bank of Pakistan (SBP) confirmed that the bulk of remittances coming from abroad covered within the limit of Rs 5 million per annum as they wanted to protect the small beneficiaries.

The FBR also proposed prosecution for concealment of offshore assets punishable with imprisonment up to 7 years or with fine up to two hundred percent of the amount of taxes evaded or both. The FBR high-ups told the committee that it was demand of the OECD countries to comply with their demands.

NA Standing Committee on Finance: In a separate meeting of National Assembly Standing Committee on Finance that met under chairmanship of PTI MNA Asad Umar here at the Parliament House, the debate on government’s tabled bill for bringing amendments into Foreign Exchange Regulation Act 2019 continued as the State Bank of Pakistan (SBP) Director Ifran Ali told the committee that the bill proposed ban on inland revenue movement of foreign currency in line with action plan placed by FATF. He said that the punishment for illegal movement of foreign exchange proposed to be increased from 2 to 5 years. The proposed law also bound courts to take decision on these charges in six months period.

Pakistan included into high risk of money laundering and terror financing so FATF put Pakistan into list of review of 12 countries and placed some harsh measures to ensure compliance.

The SBP issued notification under which any person travelling abroad could posses $10,000 and child could possess $1,000.

However, the SBP official admitted that there was no restriction of currency movement in case of Bangladesh while in case of India every individual had to surrender foreign currency exceeding $2000 within 90 days of his return from abroad.

Deputy DG FIA told the committee that the FIA propose 10 years imprisonment while SBP inserted 5 years imprisonment into this new bill. PPP MNA Syed Naveed Qamar said that this law would be misused in the country.

On amendments into Anti Money Laundering (AML) law, the finance ministry told the committee that the government proposed money laundering as cognizable offense for allowing investigation officers to arrest anyone on charges and increased imprisonment up to 10 years. The bill proposed jacking up penalty from Rs1 to 5 million.

The bill proposed due administrative powers for Financial Monitoring Unit (FMU). The bill proposed attachment of properties up to 180 days. The Chairman of the committee Asad Umar said that the Finance Ministry and SBP should make up their minds and come up with finalised draft of proposed bills as the committee would do voting to decide the fate of these two bills in its next meeting.

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