Govt rules out freeze on $5.4b FCAs

Top government functionaries, while explaining that the authorities would not inquire about the source of income on foreign remittances up to $100,000, on Monday ruled out any freeze on the $5.4 billion in private foreign currency accounts (FCAs) as part of the ‘Plan-B’.

The statements made in the Senate Standing Committee on Finance, and immediately after its meeting, underscore the growing challenges that the authorities face, while remaining afloat without the International Monetary Fund (IMF) umbrella.

So far, there was no proposal under consideration at any government level to freeze the foreign currency accounts of the citizens, Dr Aisha Pasha, the minister of state for finance, stated categorically after the committee meeting.
She was asked to comment whether there was any proposal to freeze the $5.4 billion foreign currency accounts, if Pakistan remained unable to revive the derailed $6.5 billion IMF programme.

She further clarified that Prime Minister Shehbaz Sharif’s statement about going to the people was meant to prepare them about the “painful measures that the government may have to take in case the IMF deal does not go through”.

A day earlier, the premier said that if the IMF deal could not be revived, he would go to the people.
As an alternate strategy to raise funds, the government has proposed in the budget that it would not ask about the source of income on inward flows of up to $100,000 remittances.

Headed by Senator Saleem Mandviwalla, the committee began clause-by-clause scrutiny of the budget for fiscal year 2023-24, which also proposes an amnesty on hidden and tax evaded money.

“We will not ask about the source of income on the inflows of $100,000 foreign remittances”, Federal Board of Revenue Chairman Asim Ahmad informed the standing committee.

Ahmad insisted that it was not a new amnesty; rather, a provision already existed in the law that allowed the inflow of foreign currency equal to Rs5 million without disclosing the source of income.

But the $100,000 amnesty is in violation of the IMF programme and the country’s commitments under the Financial Action Task Force (FATF), according to the sources.

Ahmad said that the provision related to Rs5 million no-question asked was present in the law even when Pakistan was in the FATF grey list.

To a question, Dr Pasha said that the proposed budget was “largely in line with the IMF programme’s objectives and had shown primary budget surplus” of Rs379 billion.

She added that the government might have to get the IMF on board on tax exemptions granted in the budget. But stated said that these exemptions were needed for taking the economy out of recession and reducing poverty, which were also the goals of the IMF.

Majority of the commentators have termed the new budget “a fiscally expansionary one” while the State Bank of Pakistan (SBP) said on Monday that the budget was “slightly contractionary” compared to the revised budget numbers.

The new budget started with a “sorry” picture, and it didn’t bring any revival plan for the industries, exporters and also lacked fundamental reforms, said Senator Mohsin Aziz. He added that the government was going to begin the new fiscal year with Rs7 trillion borrowing plan.

But Dr Pasha said that the new budget should not be discredited outright, and maintained that the country was saved from default even after the disastrous floods and global climate crises. She added that the government foresaw 3.5% economic growth and a reduction of average inflation from 29% to 21%.

The committee’s proceedings further revealed that the government had taxed many food items despite over 52% prevailing food inflation in Pakistan. The government had proposed 18% sales tax on chilies, ginger, turmeric, yogurt, butter, desi ghee, cheese, products of meat, and fish.

The committee deferred the matter of imposition of 18% tax on all branded edible goods. Committee members said that they failed to understand the reason behind imposition of 18% tax on those goods and recommended to review the proposal.

The committee also rejected the government proposal to extend tax-free status of erstwhile Federally Administrated Tribal Areas (Fata) for one more year.

The committee unanimously rejected the exemption of sales tax on supplies and import of raw materials, plant and machinery and supply of electricity to the industrial units and consumers of Fata.

The committee also opposed increase in sales tax rate from 12% to 15% for the Tier-I retail shops that were already integrated with the FBR. It said that such enhancement was only encouraging the non-registered sectors in Pakistan.

The committee also opposed 10% tax on bonus shares saying that it would discourage new investments.
Representatives of the Faisalabad Chamber of Commerce and Industry also put forward their concerns. They demanded that the super tax rates should be rationalised and exporters should be exempted from it.
It was also contended that 10% tax on bonus shares should not be imposed. The businessmen also opposed the introduction of a new 50% windfall profit tax, terming it “extraordinary”.

Jabbar Memon – a leading industrialist – said that 0.6% tax on cash withdrawals would promote Hawala and Hundi business in Pakistan. He proposed that severe punishments should be introduced in the law for the taxmen, who make wrong and unsubstantiated tax recovery cases against the taxpayers.