KARACHI: Pakistan’s foreign currency dealers are flustered by Federal Board of Revenue (FBR) notices, demanding collection of taxes on foreign exchange transactions, which may lead to currency depreciation and encourage illegal money exchange and transfer.
“FBR is issuing unnecessary notices which have become a cause of harassment to them,” said Exchange Companies Association of Pakistan (ECAP) in a letter to the federal finance minister. Malik Bostan, chairman ECAP, said the FBR had asked the exchange firms to pay 16 percent federal excise duty (FED) on income earned by customers from buying and selling of foreign currency to them.
“If FBR notices are implemented they will contribute towards depreciating rupee to Rs200 against US dollar and support illegal hundi-hawala market,” he added.
Bostan said the exchange firms, which deal in buying and selling of the foreign currencies, were not a part of services sector and were already paying 29 percent income tax on their incomes. In a major move, the government has also decided to set up a point of sale (POS) unit at all forex companies to document transactions of the foreign exchange dealers or exchange companies, and directed them to online integrate with the FBR’s computerized system.
Foreign exchange dealers and companies now fall under Tier1 category, as per the FBR notice. The FBR has notified SRO50(I)/2022 to draft amendments in the Income Tax Rules, 2002. It has issued instructions to the money changers in this regard. According to the FBR, the board has included foreign exchange dealers/exchange companies in the list of the businesses that are required to online integrate their businesses.
“Every exchange company has to install POS, according to the FBR, people’s daily buying and selling of foreign exchange currency will be further recorded,” said Zafar Paracha, Secretary General ECAP.
“The decision is expected to help widen tax net and curb money laundering; it will also control unnecessary demand for dollars in the market, we welcome this move,” Paracha added.
Established under the Foreign Exchange Regulation Act, 1947, Exchange Companies (ECs) have been actively playing their role in facilitating the foreign exchange transactions. ECs have been growing steadily with expanding networks, improving profits and sufficient capital.
The scope of business of ECAs include buying and selling of foreign currencies, inward home remittances, outward remittances, export of foreign currencies other than US dollars, branchless banking as agents of authorized financial institutions, collection of utility bills and installation of banks’ ATMs at their branches. ECs are prohibited to engage in any other activity such as deposit taking, lending etc.