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In the earlier article on this subject, this writer discussed the projections for PkR exchange rate for 2024. In the third part of his series of articles he has tried to identify the manner in which the whole mess of foreign exchange regulation has been created in Pakistan after 1990.

This discussion will remain incomplete unless there is a thorough examination or scrutiny of the decision of a Full Bench of Lahore High Court reported as (1997) 76 Tax 302 (HC. Lahore). This case has achieved finality as appeal was not entertained by the Supreme Court of Pakistan.

USD to PKR forecast for 2024 — I

It is the author’s opinion, the judicial authorities are required to interpret the law without indulging in discussion which portrays a particular economic thought. In this decision the Full Bench of the Lahore High Court, without taking into account the possible abuse that can happen due to their blanket approval, vitually pushed the whole economy out of regulations, documentation and taxation.

Without any apparent reasons the Lahore High Court had said:

13- At this stage it would be advantageous to state that prior to 1990 there were various legal provisions in the field including Foreign Exchange Regulations Act, 1947 and Customs Act, 1969 which prohibited import and export of foreign currency by persons or citizens of Pakistan and also made it an offence to retain any foreign exchange or to open any foreign currency account. It was realized that these measures hampered development and led to close door of economy resulting in its stagnation and shying away foreign capital.

14- It was in realisation of this economic reality that various measures were taken in the year 1990 by the Federal Government by introducing economic reforms in order to liberalise the economy and provide incentives to the investors and encourage remittance of foreign exchange from road.

In addition to other steps, almost all restrictions on import and export of foreign exchange and opening of foreign currency accounts and their operations were removed by the Government and protection and immunity was granted to those accounts.

On 12-2-1991, the State Bank of Pakistan issued a circular permitting Pakistani nationals resident in Pakistan to open and maintain foreign currency accounts with Banks in Pakistan.

It was, inter alia, provided that no question shall be asked by any Authority in Pakistan about the source of acquisitions of such foreign exchange. Another circular was issued on 14-2-1991 to remove certain restrictions which have been placed in the earlier circular.

USD to PKR forecast for 2024 — II

15- It need not be emphasised that with rapid developments in the field of trade, commerce and communication and with modern technology the world itself has become a global village and no country can prosper in isolation of others.

Presently there is an ongoing fierce competition among various developed countries to attract foreign investment for the purpose of development. In such a situation the importance of creating a liberal environment to encourage inflow of foreign currency cannot be under-stated.

16- The background in which the Protection of Economic Reforms Act, 1992 was promulgated has been noticed, now the various provisions of the Act are examined. According to its preamble the object in enacting the said Act was to create liberal environment for savings and investments and to provide for legal measures by the Government with a view to create confidence in the establishment and continuity of the liberal economical environment.

“Economic reforms” have been defined in subsection 2(b) as Economic policies and programs, laws and regulations announced, promulgated or implemented by the Government on and after 7th day of November, 1990 relating to privatisation of public-sector, enterprises and nationalised banks, promotion of savings and investments, introduction of fiscal incentives for industrialization and deregulation of investment, Banking, finance exchange and payments systems holding and transfer of currencies (underling is ours).

By section 3, the Act has been given an overriding effect not only over Foreign Exchange Regulations Act, 1947. Income-Tax ordinance, 1979 but over any other law for the time being in force. Section 4 of the Act is important for the present purposes.

It provides that all citizens of Pakistan, residing 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 and shall not be required to make a foreign currency declaration at any stage nor shall anyone be questioned in regard to the same.

Section 5 which has been reproduced above again deals with the foreign currency. Section 6 relates to another subject and provides protection to fiscal incentives for setting up of industries.

Sections 7 and 8 grant protection against compulsory acquisition and nationalisation. Section 9 provides for secrecy of bona fide banking transactions of all banks and Financial Institutions. Section 10 of the Act protects the financial obligation incurred under any instrument or contract made by or on behalf of the Government.

17- It will be seen from the above that Protection of Economic Reforms Act, 1992 was promulgated pursuant to the Policy of the Federal Government to protect various economic reforms undertaken by it in order to provide incentives to investors and to encourage inflow of foreign currency into Pakistan.

While interpreting such a law relating to economic matters the Court should, so far as possible, adopt that interpretation which furthers the object for which the same has been promulgated.

If the emphasised parts as above on which this decision is based are read properly then there is no doubt in the mind of the author that this ‘wrong’ decision has adversely changed/devastated the course of Pakistan’s economic history.

Most Pakistanis are not satisfied with this decision of the Lahore High Court. However, it is a firm view of the author that the Learned Judges were not properly apprised by the other side. The problem did not lie with the judiciary; it lay with the legislators who were directly involved in the actual transactions and knew full well the facts underlying the statute.

The author is even ready to give benefit of doubt to those legislators too, but there is no excuse for military ruler Gen Pervez Musharraf’s government between 1999 were 2008, which repeatedly apprised about this crime and did not take any corrective action. This clearly shows that the importers’ lobby/mafia is so strong that it can even take on a military government.

The liberal environment provided for investment in the statute was so designed by our regulators that it provided a simple avenue to allow capital outflow from Pakistan.

If it is considered that average imports from China were US $ 4 billion, which can be subjected to this mechanism then using the estimation as used in this diagram the properties of such importers in Dubai are expected to be US $ 4-2=2 x 30=60 billion.

Even if the same amount is discounted by 50% it would be over US $ 30 billion. Pakistan is poor but not its importers.

This is illustrated in the following diagram.

The transactions are very simple. These are:

a. Official import China of US 1. Exchange Rate Rs 250.

b. Actual Price US $ 2.

c. L/C through bank US $ 1;

d. Final Tax at import stage 5% of Rs 250

e. Sale of the product in Pakistani market for US $ 4=1000

f. Purchase of US $ 3 from Exchange Company and sent to bank in Dubai. Rs 750. No cash in any Pakistani bank account;

g. A Dubai bank sends the remaining US $ 1 to Chinese exporter;

h. The same Dubai bank sends back US $ 1 to Pakistan for family expenses. No question asked as per law approved by the High Court;

i. Dubai bank retains US $ 2 for buying property for the family.

This decision looked into only one part of the transaction. It totally ignored the manner in which the untaxed and corrupt money can be deposited into the foreign currency account maintained by Pakistanis, transferred to places outside Pakistan and then brought back in the manner as was alleged in this case.

If that window remains open then anything about documentation and taxation in Pakistan remains a daydream. In order to further consolidate the crime two other legislations were introduced at the same time. These were (a) presumptive tax regime and (i) no question asked for funds brought into Pakistan under Section 111(4) of the Income Tax Ordinance, 2001. (Also in earlier law).

If somebody manages these transactions then he/she is treated as successful businessman in Pakistan. There is no tax, ease in doing business, or buying property in the UAE. The best part is that everything done as above is legal and wholly protected by the law. No need for ‘Hawala’. In case if this is the law then how can there be any documentation or tax system?

In this diagram the tax department and the regulators look like fools. There are two friends— China and the UAE — on the one hand and Pakistan, a poor country, on the other. This country will remain poor if there is no realisation of the magnitude of the destruction this crime has created in the country in the last thirty years.

The author remained Chairman Federal Board of Revenue for only eight months and is satisfied that two actions were initiated and completed. First was complete abolition of the Presumptive Tax Regime by the Finance Act, 2019 and other being change to the Protection of Reform Act, 1992 with respect to acquisition of US $ from the open market.

Furthermore, a blanket approval under Section 111(4) of the Income Tax Ordinance, 2001 has been restricted. Our importers/traders are not happy with these decisions; however, the people of Pakistan have to understand what we have actually done to this country in the name of liberalization in the last 30 years.

The primary point of this article is whether or not the judiciary whilst deciding about this economic matter was aware of the ground realities in relation to the country’s economy.

Were they properly assisted? After 30 years one can easily say that the birth or the emergence of the following triangle was the biggest intellectual corruption committed by the political governments of Pakistan. The military government of General Musharraf was apprised about the abuse but it did not take action:

a. The Protection of Economic Reforms Act, 1992 protected by the Lahore High Court’s Bench decision;

b. Protection of Presumptive Tax Regime 1990 by a Supreme Court of Pakistan decision in the case of Elahi Cotton Mills Limited

c. Immunity from questioning (Section 111(4)) granted/allowed by a Lahore High Court decision.

The author has written extensively about these matters; however, they have not been taken up during the last 30 years. It is good that the challenge of under-invoicing with China has now surfaced in the Senate Standing Committee. The difference of $ 5 to $7 billion may not be significant for China but this is 10% of our actual import value and is enough to destroy many things in Pakistan.


Copyright Business Recorder, 2023


Comments are closed.

Awami Nov 03, 2023 08:54am
Everybody should be grateful to author for such clear concise & Precise about under invoicing and systematic creation of Tax free $ and away from knowledge of national tax dept. The beauty of system is there no law breaking. His diagram gives how money/ dollars becomes available for real estate investment in foreign land . Also periodic opportunities , allowing no asked questions and coming of money back to home country. This hidden cancer and is killing nation's economy and local currency. Unfortunately , nothing will happen even with his open but hidden secret. I pray for author's security and safety, for he has put light on terrible things going over decades.
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Rixwan Nov 03, 2023 11:02am
One thing i don't understand. As per author, the Dubai bank gets $3 sent from Pakistan, out of $3, $1 is paid to the Chinese, now out of remaining $2 how is it that $1 is sent back to the family in Pakistan for expenses and bought property worth $2 in Dubai. Is my maths not ok or am I missing somethin?
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Imran PM 2024 Nov 03, 2023 12:04pm
I urge all overseas Pakistanis not to send remittances through legal channels until Khan is back. Let the looters suffer.
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Ashfaq Ahmed Nov 03, 2023 09:20pm
Author forgot that he lives in Pakistan. He has written 3 articles and dollars started to up again. Please kindly don’t write part 4 and give your ego a rest
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zaya zaya Nov 04, 2023 04:09am
This forecast has already started to go wrong, such a clickbait, he is losing integrity, rest of it is good accounting analysis with cost/benefits and system leakages. No one can forecast FOREX, its that simple.
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Amigo Nov 04, 2023 09:24pm
Thanks to Business Recorder for publishing this article & allows people to comment freely.
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M M Alam Nov 04, 2023 11:33pm
Economics/Finance is not Accountancy. When accountant wants to manage economy , results are 'phenomenal' Guinness Book of world records acievement. Ishaq Dar is an accountant. Look what he did to Pakistan's economy. It is nothing short of 'extraordinary'.
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M M Alam Nov 06, 2023 06:01am
@Rixwan, me too. I did not get it.
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