Govt prepares Foreign Exchange and Tax Laws 2018 draft bill

ISLAMABAD: In a major development, the government has prepared a draft bill titled Foreign Exchange and Tax Laws 2018, proposing withdrawal of income tax exemption without any limit in order to curb its misuse for the purpose of tax evasions.

The draft of new bill has been shared with the Senate Standing Committee on Finance here on Tuesday.

The government has now proposed through new bill for putting a limit of Rs10 million for enjoying tax free remittances receiving from abroad during a tax year.

The government in its written explanations before the parliamentarians conceded on Tuesday during the Senate Standing Committee on Finance and Revenues meeting that sometimes the unlimited exemption is misused as locally generated untaxed/illegitimate funds may be sent out of Pakistan using illegal channels (Hawala) and brought back through banking channel in order to legitimise such funds besides availing exemption from tax under the provision of Income Tax Ordinance 2001.

The government has introduced new bill Foreign Exchange and Tax Laws 2018 for bringing amendments in the Protection of Economic Reform Act (PERA) 1992, Foreign Currency Accounts (Protection) Ordinance 2001 and amendment in Income Tax Ordinance 2001.

The Ministry of Finance and State Bank of Pakistan (SBP) high-ups briefed the Senate Standing Committee on Finance on the proposed new bill here at the Parliament House as the Senate panel held its meeting under Chairmanship of Senator Saleem Mandviwalla on Tuesday.

In the written explanation tabled before the senators, the government states that the Income Tax Ordinance 2001 exempts foreign exchange inward remittances from being taxed without any limit.

The government conceded that sometimes this exemption is misused for the purpose of tax evasion. Accordingly this exemption is being curtailed which shall now remain available for remittances up to Rs10 million only received during a tax year. The bill seeks to enable the SBP to issue necessary instructions to effectively regulate outward transfer of locally generated foreign exchange by imposing appropriate restrictions on feeding of foreign currency accounts through cash. A new clause has been introduced in this bill for effectively regulating cross border or inland movement of foreign currency in cash. In terms of provisions of PERA, anyone can bring in and take out of Pakistan any foreign exchange without any restrictions.