Islamabad, April 18, 2019: Grapevines related to the subject aren’t limited to social media now. A famous English news paper of Pakistan prints that the government looks forward to reverse the Protection of Economic Reforms Act (PERA, 1992, which enables immunity for the Pakistanis with regards to foreign currency remittances via banking channels from overseas.
Recently, The News (Pakistan’s famous news agency) publishes a report with reference of a ministry regarding the discussions being carried out among the ruling class over the subject, and most likely, the mentioned PERA act shall depart soon.
The report further stated that the government holds the perspective that the PERA 1992 was meant to attract foreign remittances but got heavily used by the business community to whiten their untaxed money.
Abolishment of PERA 1992 shall surely bring difficulties on the part of the overseas Pakistanis in their remittances across the country.
The act offers the following immunities to foreign currency accounts.
“(1) All citizens of Pakistan resident in Pakistan or outside Pakistan who hold foreign currency accounts in Pakistan, and all other persons who hold such accounts, shall continue to enjoy immunity against any inquiry from the Income Tax Department or any other taxation authority as to the source of financing of the foreign currency accounts: Provided that such immunity shall not be available to citizens of Pakistan residing in Pakistan and to firms, companies and other bodies registered or incorporated in Pakistan in respect of any new foreign currency account opened or deposits created on or after the 16th day of December 1999 or to any incremental deposits thereafter in an existing foreign currency account.
(2) The balances in the foreign currency accounts and income therefrom shall continue to remain exempted from the levy of wealth tax and income tax and compulsory deduction of Zakat at source: Provided that such exemption shall not be available to citizens of Pakistan residing in Pakistan and to firms, companies and other bodies registered or incorporated in Pakistan in respect of any balance in a new foreign currency account opened or deposits created on or after the 16th day of December, 1999 or to incremental deposits created on or after the 16th day of December, 1999 in an existing foreign currency account and income therefrom.
(3) The banks shall maintain complete secrecy in respect of transactions in the foreign currency accounts [except as otherwise required under the Foreign Exchange Regulation Act, 1947 (VII of 1947) or the Income Tax Ordinance, 2001 (XLIX of 2001)].
(4) The State Bank of Pakistan or other banks shall not impose any restrictions on deposits in and withdrawals from the foreign currency accounts and restrictions if any shall stand withdrawn forthwith: [Provided that no cash shall be deposited in an account of a citizen of Pakistan, resident in Pakistan, unless the account holder is a filer as defined in the Income Tax Ordinance, 2001 (XLIX of 2001): Provided further that the Federal Government may make rules governing deposits in and withdrawals from the foreign currency accounts.]”
PERA 1992, if abolished, is expected to shiver the business community in the context of their foreign currency remittances, former secretary finance Dr. Waqar Masood Khan in his article for The News wrote, “While the country is moving towards documentation, it would be imperative to also remove a distortion that continues to plague our forex regime – the so-called Protection of Economic Reforms Act (PERA), 1991.”
“This law provides an uncalled for the facility to residents to maintain a foreign currency account (FCA) and hold, deposit and remit foreign currency through this channel. This is a standing scheme for a flight of capital and an occasional source of balance of payments problems. Residents can buy dollars from money changers and deposit them in their FCAs.”,
He continuous, “The process of dollarization is a sure recipe for creating forex shortages, especially when the country is facing an external account problem, as is happening at present. This budget should see the closure of this avenue of instability.”
Section 4 of the law deals with “Freedom to bring, hold, sell and take out foreign currency” and reads as: (1) All citizens of Pakistan resident in Pakistan or outside Pakistan and all other persons shall be entitled and free to bring, hold, sell, transfer and take out foreign exchange within or out of Pakistan in any form. (2) Nothing in sub-section (1) shall apply to.–– (a) any foreign exchange borrowed under any general permission given by the State Bank of Pakistan under sub-section (1) of section 4 of the Foreign Exchange Regulations Act, 1947 (VII of 1947); (b) any payment from abroad for goods exported from Pakistan; (c) proceeds of securities issued or sold to non-residents; (d) any payment received from abroad for services rendered in, or from Pakistan; (e) earnings or profits of the overseas offices or branches of Pakistani firms and companies including banks; and (f) any foreign exchange purchased from an authorized dealer[,money changer or exchange company] in Pakistan for any purpose; (g) cross border or inland movement of foreign currencies in cash exceeding US$ 10,000 or equivalent subject to such annual ceiling as may be prescribed by the State Bank of Pakistan”.
What appears is that it’s a matter of weeks, if not months, that the government shall reveal its final verdict regarding the subject, and the reaction to that shall definitely be followed likewise.