ISLAMABAD: The government is exploring the option of permitting individuals to bring in up to $100,000 from abroad without disclosing the source of income. This move aims to attract billions of US dollars in the next fiscal year. However, potential challenges may arise from this decision.
Sources indicate that the government is contemplating an amendment to Section 111 (4) of the Income Tax Ordinance, which deals with unexplained income.
While some view these proposals as a continuous tax amnesty scheme, others see it as an alternative means to acquire essential foreign currency and avoid a default.
Under the existing law, the Federal Board of Revenue (FBR) is not allowed to inquire about the source of income if the foreign exchange remitted from outside Pakistan through regular banking channels does not exceed Rs5 million in a tax year. Additionally, the remittance must be converted into rupees by a scheduled bank, accompanied by a certificate from the bank confirming the conversion.
A few years ago, the previous government reduced the limit from Rs10 million to Rs5 million to mitigate the conversion of illicit funds into legal money.
In the last budget, the government also expanded its scope to include remittances received through money service bureaus, exchange companies, or money transfer operators.
Sources reveal that there is a proposal to replace the amount of “Rs5 million” with “$100,000” in the relevant section.
Based on the current rupee-dollar exchange rate, Rs5 million is equivalent to $17,500, whereas $100,000 amounts to Rs29 million. This sum cannot be categorized as a regular remittance within a family.
If Prime Minister Shehbaz Sharif endorses the proposal, individuals will be able to bring in almost five times more money without disclosing the source of income.
Government officials declined to confirm whether an amendment to Section 111 (4) was being considered, but they did mention that the US dollar value has yet to be determined.
The Finance Ministry has reportedly consulted with the central bank, although a final decision has not been reached.
Pakistan has made a commitment to the International Monetary Fund (IMF) that it will not offer any further tax amnesties. Therefore, relaxing the requirement to disclose the source of income for remittances exceeding Rs5 million may be perceived as an amnesty.
Typically, every commercial bank scrutinizes the source of remittances, even for as little as $500, before transferring an equal amount in rupees to the beneficiary’s bank account.
The government hopes that this measure will enable the country to receive billions of US dollars, providing temporary relief until a new IMF program is established.
Pakistan has yet to finalize an agreement with the IMF, and the organization has raised concerns about the accuracy of Pakistan’s budget figures. The IMF has also questioned the viability of revenue estimates for the upcoming fiscal year.
Negotiating a new IMF deal will be challenging, especially since the current $6.5 billion program expires on June 30 without renewal.
On Wednesday, IMF staff met with FBR officials to assess the feasibility of proposed revenue measures and the FBR’s capacity to collect Rs9.2 trillion in taxes in the next fiscal year.
International financial institutions may request that Pakistan undergo debt restructuring to qualify for a new bailout package.
The Reform and the Revenue Mobilization Commission (RRMC) has also recommended amending Section 111 of the Income Tax Ordinance to tax all undisclosed Benami assets in the year they are discovered.
However, the commission proposed making the law more stringent rather than relaxing it for the benefit of individuals who fail to declare their hidden assets to evade taxes.
The purpose of the RRMC’s amendment was to address the issue of time-barred cases, as the FBR is unable to tax old cases beyond a certain period. Section 111 deals with unexplained income and assets, which have been exploited over the years by individuals.
The Lahore Chamber of Commerce and Industry has also called for a tax amnesty on undisclosed foreign exchange held by citizens. However, the finance minister has previously stated that amnesty is not possible under the IMF program.
Furthermore, the government is considering additional tax concessions for traders, including the relaxation of certain requirements for retailers to qualify as Tier-I retailers.
With the potential amendment to the Income Tax Ordinance, the government aims to attract significant foreign currency inflows without the need for individuals to disclose the source of their income. This move could provide a much-needed boost to the country’s foreign reserves and ease financial pressure until a new IMF agreement is reached.
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