Expert says foreign exchange regime undergoes fundamental change

The Finance Act 2018 has been passed without much fanfare, despite it carrying significant amendments that have fundamentally altered the foreign exchange regime of Pakistan. Renowned tax expert Shabbar Zaidi while talking to Aaj News and Business Recorder, termed the Finance Act amendments a "360 degree change in Pakistan's foreign exchange regime."
Shabbar stressed that this is a huge development and the "most important change" in the recent economic history of Pakistan. He was surprised that it has not been commented on by relevant circles. Certain amendments may need approval from the upper house ie the Senate of Pakistan, but constitutional expertise is sought on the matter as there are judgments of superior courts in the field as regards amendment of laws through finance bill.
He recalled that as per the Protection of Economic Reform Act 1992 (PERA), individuals could keep a foreign currency account and could feed the same by buying foreign exchange from rupees in Pakistan. The same foreign exchange could also be easily sent outside Pakistan under the PERA 1992. In addition to the free movement of foreign currency to and from Pakistan, PERA ensured there were no questions or queries to be raised on foreign currency accounts in Pakistan.
The amendments mean the liberty on foreign exchange movement is now over. The foreign currency account can now only be used for money coming from outside Pakistan - but even that could be questioned, should the authorities deem fit. Shabbar stressed that changes of such fundamental nature now assert that "the Protection of Economic Reforms Act 1992 is almost dead."
Explaining the need to bring amendments in PERA, Shabbar pointed out that the main objective of PERA 1992 was to bring money in Pakistan and not to send it abroad. There is still confusion whether the restriction on outward remittance from foreign currency accounts fed with locally purchased dollars by filers is permitted or not.
Given Pakistan's vast base of under-invoicing and undocumented economy, this leads to the question whether these restrictions would lead to increased reliance on hawala/hundi mechanism of transporting currency. "Hawala could certainly become more attractive, but we need to stop that and a good change must not be undone just on the fear of Hawala. The basic change is that dollar was being converted from rupee and was being shifted outside Pakistan, which will not be allowed," said Shabbar stressing the need for "effective management of foreign exchange" to yield the desired results.
More clarity remains to be sought on certain aspects of the amendments in the Finance Act. What is clear is that the very basis of the foreign exchange regime has changed in Pakistan. And according to Shabbar, it has changed for the better, as the amendments are "correct and imperative". There is a need for more debate on the issue and efficient management control by relevant authorities.