LAHORE: Changes in law and tax provisions have failed to provide mechanism to control unauthorized foreign currency outflows from Pakistan, sources said on Friday.
According to the sources, the changes included the promulgation of Foreign Assets (Declaration and Repatriation) Act, 2018, and restriction of cash feeding of foreign currency accounts to the tax filers only, imposition of regulatory check on cash movement of foreign currency above $100,000 within Pakistan and limiting of immunity from taxation of inward remittances under Section 114(a) of the Income Tax Ordinance, 2001 to a maximum $100,000 per annum.
It may be noted that Federal Finance Minister Ishaq Dar has termed smuggling of currency as a major source behind the abnormal rise in dollar value against the local currency.
According to the sources, Pakistan Customs has failed to ensure mandatory cash declaration requirement at the borders. They said the number of cases so far identified where people were caught transporting cash using traditional means such as personal baggage, vehicles, and accompanied freight, cargo, and mail are abysmally low.
Also, they said, the federal government has made negligible efforts to educate the public regarding common methods for currency smuggling, and the denomination of notes being used to move cash in and outside the country. Meanwhile, sources from Pakistan Customs have pointed out that most of their efforts to curb currency smuggling have failed due to the interference of politically-exposed persons who facilitate currency smuggling as well as evading regulatory regimes and breaking audit trails.
It may be noted that the Foreign Assets (Declaration and Repatriation) Act, 2018, was introduced to check unbridled cash feeding of foreign currency accounts while availing the immunity under the provisions of the Protection of Economic Reforms Act, 1992 (PERA). Smuggling of foreign currency without any check or scrutiny to foreign jurisdictions was quite under the Act.
The sources said laxity in the regulatory framework for the retained portion of export proceeds has facilitated its leakage and accumulation of undeclared assets abroad by the exporter community.
Also, they said, the weakness of the information and regulatory systems for the valuation of goods/services by the Federal Board of Revenue and State Bank of Pakistan have fostered unauthorized retention of foreign exchange abroad.
They further added that both the Hundi and Hawala means of foreign currency transfers have remained available in the market as illegal channels for transfer of ill-gotten or tax evaded funds. Short limitation periods in tax laws for initiating legal action against tax evaders and defaulters have blocked the assessment and recovery of tax on global income and wealth of citizen, they said.
Meanwhile, scant bilateral tax treaties with other countries for mutual cooperation and exchange of information have hampered detection of foreign assets accumulated by citizen. Vague and insufficient definition of key tax concepts like ‘resident’, ‘non-resident’, ‘foreign company’, ‘trust’, and ‘beneficiary’ have also played due role in unauthorized foreign currency inflows, they said.
Copyright Business Recorder, 2022