In an effort to attract billions of dollars to the country and avoid a potential default, the government of Pakistan is contemplating amending the Income Tax Ordinance. The proposed amendment aims to allow individuals to bring in up to $100,000 from abroad without having to disclose the source of income. While some view this move as a perpetual tax amnesty scheme, others see it as an alternative means of securing foreign currency to avert a financial crisis.
Presently, under Section 111 (4) of the Income Tax Ordinance, the Federal Board of Revenue (FBR) cannot inquire about the source of income if foreign exchange remitted from outside Pakistan through normal banking channels does not exceed Rs5 million in a tax year, as long as it is encashed into rupees by a scheduled bank and a relevant certificate is produced. However, the proposed amendment seeks to replace the limit of Rs5 million with $100,000.
At the current exchange rate, Rs5 million equals approximately $17,500, while $100,000 amounts to around Rs29 million. This proposed amendment represents a nearly fivefold increase in the amount that individuals can bring into the country without disclosing the source of income.
Although government officials have remained tight-lipped regarding the amendment, the Finance Ministry has reportedly consulted with the central bank. However, the final decision on the dollar value and the amendment is yet to be made.
It is important to note that Pakistan has committed to the International Monetary Fund (IMF) not to provide any further tax amnesty. Thus, if the relaxation in the disclosure of sources for foreign remittances up to Rs5 million is implemented, it could be seen as an amnesty, potentially raising concerns with the IMF.
While most commercial banks currently inquire about the source of remittances, even for amounts as small as $500, before transferring funds to the beneficiary’s account, the proposed amendment aims to attract substantial foreign exchange, providing temporary relief until a new IMF program is established.
However, signing a new IMF deal poses challenges for Pakistan, particularly as the current $6.5 billion program is set to expire on June 30 without being renewed. The IMF has also raised doubts about the budget figures and revenue estimates provided by Pakistan for the upcoming fiscal year.
Additionally, international financial institutions may require Pakistan to undergo debt restructuring to qualify for a new bailout package. It is worth mentioning that the Reform and Revenue Mobilization Commission (RRMC) had previously recommended amending Section 111 of the Income Tax Ordinance to tax all undisclosed Benami assets in the year of discovery, albeit with stricter regulations.
As discussions continue, the government is also considering further relaxation of the tax regime for traders, including easing requirements for qualifying as a Tier-I retailer.