Restriction on non-filer forex accountholders : SBP’s rules to clean up untaxed money from banking system
KARACHI: The central bank’s rules to restrict access of the non-filers to foreign currency accounts would gradually clean up untaxed money from the banking system, although it may hurt much-needed forex inflows in the short run, analysts and bankers said.
Analysts said foreign currency accountholders have been facing intensifying scrutiny by banks since the central bank, three months ago, disallowed deposit into foreign currency accounts by non-filers of tax returns.
“It is true that the level of scrutiny for all deposits has increased manifold, especially foreign currency deposits,” an analyst at Tresmark Research said, requesting anonymity.
In April, the State Bank of Pakistan (SBP) took a decision to tighten noose around non-filers in line with the Protection of Economic Reforms (Amendment) Ordinance 2018.
“A foreign currency account of a citizen of Pakistan resident in Pakistan can be fed with cash foreign currency if the accountholder is a filer as defined in Income Tax Ordinance 2001,” the SBP said in a statement then.
“Foreign currency accounts can be fed by remittances received from abroad, travelers cheques issued outside Pakistan (whether in the name of accountholder or in the name of any other person) and foreign exchange generated by encashment of securities issued by the government of Pakistan.”
Bankers said there is still no restriction on non-filer foreign currency accountholders to withdraw money from their accounts.
Tresmark Research’s analyst said foreign currency deposits in banks swelled during the last one year as many people were anticipating rapid rupee devaluation. The foreign exchange reserves of banks rose to $6.581 billion during the week ended June 22 compared with $6.533 billion in the preceding week.
Rupee lost around 15 percent against the US dollar since December last year.
The government wants to document the economy and extend the tax net through the measure. Tresmark Research’s analyst said the restriction is to help the country comply with the standards of anti-money laundering (AML) and combating of the terror financing (CFT). Global financial system watchdog Financial Action Task Force (FATF) decided to place Pakistan on its grey list for the deficiencies of the country in compliance with the standards of AML / CFT.
Pakistan is signatory to a convention of the Organisation for Economic Cooperation and Development, which makes it mandatory for the member countries to exchange financial information from September.
Bankers said banks have robust system to track funds belonging to non-filers of the tax returns. Some branches have adopted a process to check filing status when accepting deposits, they said.
They said Pakistani resident can’t deposit cash in foreign currency accounts without filing income tax returns.
“But, this condition may encourage people to keep away from the banking system,” a branch manager at a local bank told The News over phone, on the condition of anonymity.
“It’s negative for the country where majority of the people are non-filers. There is a need to bring foreign currency inflows into the banking system.”
Number of filers stand at one to two million as against the official estimate of tax filers of seven million.