In a bold move aimed at boosting foreign exchange reserves, the government is contemplating a significant amendment to the Income Tax Ordinance. The proposed change would permit individuals to bring in up to $100,000 from abroad without disclosing the source of their income. While officials hope this measure will attract billions of dollars in the upcoming fiscal year, concerns about potential consequences loom large.
Sources close to the matter revealed that the amendment under consideration revolves around Section 111(4) of the Income Tax Ordinance, which currently deals with unexplained income. While some view this proposal as a perpetual tax amnesty scheme, others see it as a means to procure crucial foreign currency and avoid potential default.
Under the current law, the Federal Board of Revenue (FBR) is restricted from scrutinizing the source of income if foreign exchange remitted through normal banking channels from outside Pakistan does not exceed Rs5 million in a tax year. This exemption is subject to the condition that the funds are converted into rupees by a scheduled bank, accompanied by a certificate validating the transaction.
Previously, the threshold stood at Rs10 million, but it was reduced to Rs5 million by the previous government to mitigate the conversion of illicit funds into legitimate assets. In the last budget, the government expanded the purview of regulations to include remittances received through money service bureaus, exchange companies, or money transfer operators.
Insiders indicate that there is now a proposal to replace the existing limit of “Rs5 million” with “$100,000” in the relevant section. At the current exchange rate, Rs5 million equates to approximately $17,500, whereas $100,000 amounts to around Rs29 million. Such a substantial sum would not typically qualify as a normal remittance between family members.
If Prime Minister Shehbaz Sharif endorses the proposal, it would result in nearly a fivefold increase in the amount individuals can bring in without disclosing the source of their income.
Government officials declined to comment on whether an amendment to Section 111(4) was being considered, but they did acknowledge that the dollar value has not yet been finalized. The Finance Ministry has reportedly consulted with the central bank, although no definitive decision has been made.
However, this potential relaxation of regulations conflicts with Pakistan’s commitment to the International Monetary Fund (IMF) to refrain from granting any further tax amnesties. If implemented, the alteration allowing undisclosed foreign remittances exceeding Rs5 million could be viewed as an amnesty by international financial institutions.
It is worth noting that commercial banks currently inquire about the source of even small remittances, such as $500, prior to transferring an equivalent amount in rupees to the beneficiary’s bank account. The government is banking on the hope of receiving billions of dollars through this channel, providing a temporary reprieve until a new IMF program is agreed upon.
Pakistan’s efforts to revive the IMF deal have faced significant challenges, with the Fund raising concerns about the country’s budget figures and the viability of revenue estimates for the next fiscal year. As the current $6.5 billion program expires on June 30 without being renewed, securing a new IMF deal will prove to be an uphill task.
On Wednesday, IMF staff held discussions with FBR officials to assess the feasibility of the proposed revenue measures and the FBR’s capacity to collect Rs9.2 trillion in taxes in the upcoming fiscal year. There is a possibility that international financial institutions may require Pakistan to undergo debt restructuring in order to qualify for a new bailout package.