Outbound flows from foreign currency accounts to be examined by FBR

[Naveed Yaseen]

RECORDER REPORT
KARACHI (June 13 2008): In order to check the menace of under invoicing of imported goods, all those sending remittances from foreign currency accounts will be required to file an 'M' Form with the State Bank of Pakistan certifying the reason for the remittance being undertaken. This change is meant to check rampant under-invoicing of imported goods.

It is said that importers of goods, specially from China, remit the under invoiced amount through letter of credit opened by a bank and the balance amount is remitted through forex accounts, after purchase of foreign exchange from a money changer or an exchange company and depositing the same in individual forex accounts.

FBR in consultation with SBP has devised a mechanism that seeks to disallow non-deduction of withholding tax on foreign exchange paid to non-residents for import of goods, unless a certificate from tax department, is obtained whenever the title of goods, passes outside Pakistan. To obtain the exemption certificate filing of supporting import documents will now be mandatory.

This will ensure proper utilisation of foreign currency for import of goods, says FBR. Further, it will check misuse of foreign currency purchased from open market and its remittances abroad under the garb of imports or otherwise.

Payments to non-residents including remittance from foreign currency account and exchange companies applicable to such transactions would also need to provide on explanation for the remittance.

In order to overcome operational difficulties for enforcement against misuse of telegraphic transfers for under invoicing of imports, the overriding clause of Protection of Economic Reform Act (PERA) 1992 over Foreign Exchange Regulation Act (FERA) 1947 to this extent is being deleted from the purview of section 3 of PERA 1992.

The Finance Bill also empowers SBP to impose penalties on banks and exchange companies for violation. Hitherto, SBP could only suspend or cancel the licence. SBP would announce the penalty tariff against various violations in due course

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