The Pakistan Tehreek-e-Insaf (PTI) government is mulling to give another amnesty scheme - the third in two years, on black foreign currency being held by Pakistani nationals aimed at cushioning the dwindling foreign currency reserves.
A possible adverse reaction from the Financial Action Task Force (FATF) and the International Monetary Fund (IMF) remain barriers to materialisation of the scheme, highly placed sources in the Prime Minister’s Office told The Express Tribune.
The government of Prime Minister Imran Khan is now considering giving third opportunity to people to whiten their black money. The new under consideration scheme is the brainchild of State Bank of Pakistan (SBP) Governor Dr Reza Baqir, the sources said.
The resident Pakistanis will not be asked about the source of buying US dollars and they will also be entitled to tax exemptions, according to at least three people who are familiar with the development.
Resident Pakistanis may be asked to exchange their US dollars with Pak rupee denominated certificates for one to two years at the Central Directorate of National Saving Schemes (CDNS), the sources said. To lure people, the government was considering offering London Interbank Offered Rate (Libor) plus 3% to 4% interest, they added.
The resident Pakistanis could be offered to exchange their dollars at the prevailing day exchange rate. On maturity of their bonds and certificates, they would be given principal amount in rupee by calculating it on the maturity day exchange rate in addition to interest payments, the sources said.
The Express Tribune had sent a set of questions to the SBP. The central bank’s spokesman promised to give version by Friday evening but the response was awaited till the filing of the story. The senior officials in the Federal Board of Revenue (FBR) and the Ministry of Finance confirmed that the central bank had proposed the amnesty scheme. The sources in the PM Office also said that the proposal has also been discussed with Prime Minister Imran Khan.
However, they said that the authorities will have to convince the FATF Secretariat and the IMF, as both the global bodies remain critical to the government’s leniency towards those who hold black money.
But in recent past, the IMF looked the other way when Pakistan gave a tax amnesty scheme to the construction sector. “The authorities have committed to not granting further tax amnesties [continuous structural benchmark],” says an agreement between Pakistan and the IMF.
The IMF had barred Pakistan from giving further tax amnesty scheme during the currency of the IMF programme after the PTI government gave a tax amnesty scheme in May last year to allow people to declare their ill-gotten and black money.
The foreign exchange reserves held by the central bank fell by over $1 billion dollar during last month before partially recovering last week. The central bank has built about $12 billion reserves by taking $5.8 billion short-term banking loans and $4 billion from Saudi Arabia and the United Arab Emirates. After excluding these obligations, the central banks reserve fall to just $2 billion and future prospects of enhancing reserves through non-debt creating inflows also remain bleak, said the sources.
In this background, the central bank was paddling the third tax amnesty scheme. But the downside was that it did not have any fair idea how much dollars it may get after allowing people to whiten their black money. The government has already announced Roshan Digital Account for overseas Pakistanis, offering them highly lucrative rates on short-term investments.
Governments of Prime Minister Imran Khan and former premier Shahid Khaqan Abbasi gave Rs61.4 billion in tax relief to just 191 billionaires, who had been caught owning offshore assets but were bailed out through two tax amnesty schemes, according to the FBR.
These 191 people paid on average 4.9% of the value of assets in taxes.
Last year, Asad Umar, the former finance minister had remarked that FBR could have recovered 70% of the assets including penalties but the FBR settled it at 2-4% by giving tax amnesty scheme. The federal government had also recently amended the Foreign Currency Accounts Rules, 2020.
The government has now imposed restrictions on deposit in foreign currency accounts (whether through direct remittance or otherwise) on account of payment for goods exported from Pakistan, payment for services rendered in or from Pakistan, proceeds of securities issued or sold to non-residents, any foreign exchange borrowed from abroad and importantly foreign exchange purchased from authorised dealer, exchange company or money changer.
However, these credits would be possible if allowed or permitted by SBP. The SBP, subsequently, also clarified that these restrictions are only meant for non-filers. A foreign currency account of a citizen of Pakistan resident in Pakistan can also be fed with cash foreign currency only if the account holder is a filer. The SBP said that these rules were issued in light of 2018 amendments in the Protection of Economic Reforms Act of 1992.
But the cabinet’s record showed that all this was done in haste for the sake of the FATF. “At the outset the members of the CCLC raised objection to late receipt of cases. The chair (Farogh Naseem) explained that the cases from the Finance Division were included at the eleventh hour, in order to meet the deadline linked to the FATF,” according to the official documents. The Finance Division presented, “The Issuance of Foreign Currency Accounts Rules 2020” in the CCLC meeting, which it approved the same day and subsequently cabinet also ratified these rules through circulation instead of having discussion in a regular meeting.
Published in The Express Tribune, October 25th, 2020.
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