To control money laundering and illegal money transfers, State Bank of Pakistan has proposed amendments to limit tax-free foreign remittances to Rs 10 million per annum.
SBP says that current laws make it easy to hide or launder illegally earned money in Pakistan.
The Central Bank also proposed to disclose details on foreign currency accounts held by Pakistanis that have billions of dollars in foreign exchnage.
SBP has submitted a draft to Senate Standing Committee on Finance where it proposed several amendments and repealing of laws. The committee told SBP to bring the proposal of amendments for the upcoming budget.
The Bank specifically asked to amend two laws to make the accounting process more transparent.
One of these laws is the Protection of Economic Reforms (PERA) 1992. SBP says that this law is being misused and it practically makes the inflow of illegal foreign currency easier.
SBP told that foreign currency account holders should declare their assets. The bank suggested that these account holders should be stopped from putting foreign currency in these accounts by buying it from the open market.
The amendment in section 4 of PERA act will make it mandatory to declare foreign currency assets. Two more amendments in section 5 of the same act will prevent foreign currency from being transferred into these accounts and its unchecked withdrawal.
The Bank asked that the source of foreign remittances sent to Pakistan must be asked and and remittances exceeding Rs 10 million should be taxed.
The draft further sought amendments in Income Tax Ordinance 2001 and revocation of the Foreign Currency Accounts Ordinance 2001. The bank says that by misusing these laws, illegal money is sent out of the country and it is then sent back in through banking channels making it “clean money”. The current laws do not ask about the source of the money that is being sent into the country.
SBP says that Foreign Currency Accounts Ordinance 2001 provides protection to the foreign currency accounts and that is why they go unchecked.
Section 111-4 (a) of the Income Tax Ordinance of 2001 is used for this whole process and it should be amended to make the process more accountable, SBP added.
The central bank further told that;
It is observed that sometimes locally generated untaxed and illegitimate funds are sent out of Pakistan using illegal channels and brought back through banking channel in order to legitimise such funds besides availing exemption from tax.
Currently, unlimited amount of money can be remitted to Pakistan without paying any taxes on it. Former Finance Minister, Saleem Mandviwala made similar recommendations before but he received opposition from the SBP. It seems SBP has realized that their might be some weight in his recommendations afterall.