Monday, September 27th, 2021
Home »Articles and Letters » Articles » Foreign currency accounts: End of an era

  • News Desk
  • May 18th, 2018
  • Comments Off on Foreign currency accounts: End of an era
The Amendments made in the Finance Bill 2018 placed before the National Assembly by the Finance Minister Dr Miftah Ismail include certain fundamental changes in the Protection of Economic Reform Act, 1992 the primary law governing the foreign currency accounts. These changes have been briefly described in the following paragraphs however in short it can be concluded that it is the end of 'free for all era' as introduced by the Protection of Economic Reform Act, 1992. This author has written various articles on this subject and had warned the regulators there is a serious abuse of this relaxed regime that is directly detrimental of documentation of economy, broadening of tax base and curbing the efforts for under-invoicing. In summary, the actions now undertaken are appropriate however State Bank of Pakistan the other regulators have to provide proper facilitation for remittances of funds abroad for various legitimate purposes, out of taxed funds in Pakistan. The changes brought forward are described in the following paragraphs:

Overriding Effect over Private Foreign Currency Accounts (Protection) Ordinance, 2001 Unlike the general perception the protection available to foreign currency accounts emanated from Private Foreign Currency Accounts (Protection) Ordinance, 2001 which was issued after the freezing of foreign currency accounts in 1998. In fact two laws being Protection of Economic Reform Act, 1992 and Foreign Currency Accounts (Protection) Ordinance, 2002 were required to be read together to understand the complete framework for the foreign currency accounts in Pakistan. Now by way of an Amendment in Section 3 of PERA the provisions of Private Foreign Currency Accounts (Protection) Ordinance, 2001 will be overridden by the amended provision of PERA.

Freedom Under PERA Three major changes have been made in Section 4 of PERA. This section of PERA provides Pakistani citizens right to bring, hold, sell, and take out foreign currency. These are:

1. Prior to the amendment, sub-section 1 of this Section provided that a person 'shall not be required to make a foreign currency declaration at any stage nor shall any-one be questioned in regard to the same". These words have been removed from the law. This change therefore allows declaration and enquiry of such accounts and currency under the fiscal and financial regulations;

2. Under Sub-section of Section 4 the protection under PERA are not available to certain persons and case. Two fundamental changes have been introduced in this sub-section. Under the first change that has been introduced in clause (f) of sub-section 2 of Section 4, the protection shall not be available to 'any foreign exchange purchased from an authorized dealer, money changers or exchange-company in Pakistan for any purpose. The words money changers and exchange company have been placed by the Finance Bill, 2018. This means that the protection available under the law will be not be available to the money fed in the foreign currency accounts if the sum is acquired from money changer and exchange-company. This is a very important change as this change will have to be read with another change as made in Section 5 discussed below. The primary question that will arise from this change is whether any money fed in the foreign currency account that has been acquired by purchase against rupee can be transferred outside Pakistan without the approval or system prescribed by the State Bank of Pakistan as has been indicated in Proviso to Section 5(4) of the Act;

3. Under a newly inserted clause (g) in this sub-section 'cash' movement has been restricted to 10,000 or any ceiling as prescribed under by the State Bank of Pakistan;

Immunities under PERA This section provides immunities under PERA. Notwithstanding the details on the subject one of the practical immunities laid down in the law was by way of no enquiry, examination or information by the FBR. This free for all concept has been removed. The important changes are:

1. In sub-section 3 of this section that relates to secrecy the amended position is as under:

"banks shall maintain complete secrecy in respect of transactions in the foreign exchange currency accounts except as otherwise required under the Foreign Exchange Regulations Act, 1947 or the Income Tax Ordinance, 2001.

The amended provisions therefore means that concept of secrecy in relation to Income Tax Ordinance, 2001 has been removed. This is in line with the changes now introduced in the Income Tax Law including requirement to file detail of foreign assets.

2. The second change which was also the part of the original Finance Bill introduced and the Ordinance issued on April 8, 2018 was that cash deposit in an account of a citizen of Pakistan, resident in Pakistan, unless the account holder is a filer as defined in the Income Tax Ordinance, 2001. This meant that subsequent to this amendment cash feeding in the foreign currency account is only available to persons who are tax filers. In the previous regime such feeding was allowed to all persons;

3. A positive proviso has been made by way of insertion of a proviso in this section whereby it has been laid down that the Federal Government may make rules governing deposits and withdrawal from the foreign currency accounts. As indicated earlier this provision will be required to be read in conjunction with the amendment made in Section 4 relating to acquisition of foreign currency acquired from money changers and exchange companies and suitable space is to be given for withdrawal and transfer from foreign currency accounts by tax filers for legitimate purposes out of funds acquired against Pakistani rupee acquired from money changers or exchange company.

In summary, it can be concluded that the era of free undocumented flow of untaxed and accounted money that started after 1992 is now being appropriately regulated. It is however advised that all actions be made in the manner that documented and taxed economy should not suffer. In principle the actions adopted are appropriate and there is a national need for the same.

Copyright Business Recorder, 2018

the author