Tax incentives expected to keep remittances high in 2021

KARACHI: Pakistan’s tax incentives may continue to keep the level of remittances high this year, but it is not clear how long these measures would accelerate their growth rate, the World Bank said.

Pakistan, which saw the highest surge of flows last year, had introduced new remittance tax incentives in 2019 and 2020. Remittances rose by over 17 percent to a record high of $26.1 billion, according to a World Bank’s latest migration and development brief. Remittances from Saudi Arabia increased by over 46 percent, from European Union countries by 25 percent, and from the United Arab Emirates by 19 percent, it said.

The State Bank of Pakistan, ministry of overseas Pakistanis and ministry of finance launched a joint initiative called Pakistan Remittance Initiative to provide for an ownership structure in Pakistan for remittance facilitation. The government also introduced Roshan digital accounts targeted to attract foreign currency deposits from overseas Pakistanis. However, last year the deployment of workers to the Gulf Cooperation Council (GCC) countries, Malaysia, and Hong Kong SAR and China declined by 64 percent from Pakistan. In Pakistan, the number of migrant workers dropped from 625,000 in 2019 to 225,000 in 2020, largely due to a rise in returning migrant workers from the GCC countries.

Pakistan was among top-10 recipients among low- and middle-income countries. The country received $26 billion last year compared to India ($83bln), China ($60bln), Mexico ($43bln), Philippines ($35bln), Egypt ($30bln), Bangladesh ($22bln), Nigeria ($17bln), Vietnam ($17bln) and Ukraine ($15bln).

In the region, Pakistan has the second greatest reliance on remittances at 9.9 percent of GDP after Nepal 23.5 percent. The country is the second biggest recipient in South Asia after India.

The World Bank said the remittances industry has participated in the rapid acceleration of digitalization that is observable in multiple dimensions of firms’ and households’ reactions to the COVID 19 crisis. Starting June 2020, remittance flows through digital channels increased, especially for migrants with access to bank accounts and credit cards. Many leading money transfer operators reported double-digit growth in their digital services, in sharp contrast to a fall in their cash remittance services. The switch from cash to digital channels seems to have continued throughout 2020.

Recent data showed that cross-border remittances processed via mobile money increased by 65 percent in 2020 (from $7.7 billion in 2019 to $12 billion in 2020), reaching over $1 billion in transactions sent and received each month. The World Bank said remittance flows to Bangladesh and Pakistan were also affected by idiosyncratic factors – such as the cancellation of the pilgrimage to Mecca (hajj), floods in Bangladesh in July 2020, and tax incentives offered to attract remittances. The cancellation of travel to Saudi Arabia in July 2020 diverted funds set aside for the Haj pilgrimage to remittance flows to Bangladesh and Pakistan.