Affecting millions: Dar rejects proposal of taxing foreign remittances

Will not increase BISP stipend but will extend the social security net to facilitate more families

ISLAMABAD: Finance Minister Ishaq Dar on Friday rejected a proposal to tax foreign remittances and also ruled out an increase in the monthly stipend of beneficiaries of the Benazir Income Support Programme (BISP) in the upcoming budget. However, he was ready to bring more families under the social safety network.

“The government will not bring any change in the present tax-free status of foreign remittances, which is a major source of earning for hundreds of thousands of families,” said Dar at the launching ceremony of the first National Financial Inclusion Strategy (NFIS).

Dar had turned down the proposal just a day after Federal Board of Revenue (FBR) Chairman Tariq Bajwa hinted at taxing remittances. Bajwa had informed the Senate Standing Committee on Finance that the FBR would propose to restrict the tax-free flow of foreign remittances. Other FBR officials had stated that they wanted the government to introduce at least 1% withholding tax on remittances that value over $50,000 per annum.

They said the proposal was aimed at curbing the on-going practice of legalising black money by re-routing it through foreign exchange companies.

The FBR also wanted to amend clause 111(4) of the Income Tax Ordinance, saying that it was being exploited to hide black money.

However, Dar categorically stated that he would not bring any change that will potentially affect foreign remittances in any manner.

Foreign remittances are the second most important source of balancing the external books after the export receipts. From July through April, expatriates sent $15 billion back to Pakistan– 16% higher than last year. During the same period, exports amounted to $19.9 billion. Various studies suggest that Pakistan can increase remittances to $25 billion in medium to long term.

Dar voiced his opposition to those people who are betting on the decline of the Pakistan rupee against the US dollar. “The rupee-dollar parity is determined through demand and supply factors, it is not under the influence of individuals.”

The finance minister has long claimed as success at maintaining a rupee-dollar parity, which experts says is mostly based on an artificial valuation of the rupee.

BISP beneficiaries 

Dar said that the government was planning to increase the number of BISP beneficiaries receiving official handouts in the upcoming budget. He said by June this year, the numbers of families receiving Rs18,000 annual cash stipend would grow to 5 million.

While the government does not have plans to increase this figure, Dar said the government will try to allocate more funds for BISP in the new budget and bring more beneficiaries under the BISP umbrella.

For the current fiscal year, the government had allocated Rs97 billion for cash disbursements among roughly 4.9 million families.

Responding to a question, Dar ruled out the possibility of further increasing the monthly cash stipend by Rs1,500 per family. Dar said in the last two years, the government hjad already increased the stipend by 50%.

Economic direction

The finance minister said that after averting default on foreign loan repayments and then stabilising the economy, the government’s next goal was revival of economic growth.

Dar said that current economic growth target of 5.1% had been missed due to floods, political upheaval though reduction in international commodity prices and that of oil helped contain current account deficit. Despite this, Dar said the economy had grown at a pace of 4.24%, according to National Accounts Committee’s estimates.

NFIS

Dar also launched the country’s first financial inclusion strategy that is aimed at building momentum and pushing forward reforms to achieve universal financial inclusion. Dar emphasised the need for increasing access to fair and dignified financial services to achieve sustainable economic growth.

State Bank of Pakistan Deputy Governor Saeed Ahmad said that about 50% of the entire population was completely financially excluded with no access to financial services such as formal savings, payments, deposits and credit, therefore, financial inclusion is an area of priority for the government and SBP.

There is a financing gap of $1.6 billion in implementing the targets set under the NFIS, requiring an active participation of public and private sectors to bridge the gap, said Richard Montgomery, the head of UK’s Department for International Development.