Traders have requested the intervention of the Minister of Finance for the withdrawal of the notices issued by the Federal Board of Revenue (FBR).
They warned that if the directive to levy a 16% Federal (FED) excise duty on foreign exchange were implemented, the rupiah would plunge to 200 against the US dollar, encouraging illegal trade.
“FBR has been harassing foreign exchange companies by sending out illegal notices for quite some time,” the chairman of the Association of Foreign Exchange Companies of Pakistan (ECAP), Malik Bostan, wrote in a letter to Finance Minister Shaukat Tarin.
If currency exchange firms “start charging 16% FED on exchanging currencies and processing workers’ remittances, then no one will choose to buy or sell currencies through them,” he said. he said, adding that people would stop sending funds through exchange companies.
“All foreign exchange business will relocate and operate through the illegal Hawala/Hundi operators and the black market,” he warned and added that this would push the rupee down, past 200 rupees against the American dollar.
The rupee is hovering around Rs177 in the interbank market these days. It is expected to recover in the short term around Rs175-176 and remain stable around Rs178 by the end of June 2022.
The FBR has ordered to charge customers 16% FED on foreign currency exchange. “The federal government used to charge the FED on services, but now provincial governments are collecting the tax under the 18th Amendment,” Bostan pointed out.
“Forex companies, which deal in the buying and selling of foreign currencies, do not fall under the service sector,” he said.
“Currency exchange companies pay a 29% income tax on the profits they make from buying and selling currencies,” he added.
He recalled that the federal government, the provincial governments and the FBR withdrew the FED and the sales tax on the exchange eight years ago in 2014.
Now, “once again the establishment of the tax (16% FED) is a plot against the government,” he said, stressing the need to prevent the FBR from sending such illegal notices.
In addition, RBF Field Training Officers required foreign exchange companies to submit withholding tax (WHT), which was supposed to be levied on remittances made through the Global Money Processing Company. currencies (Western Union), he pointed out.
He argued that the State Bank of Pakistan (SBP) allowed exchange companies to use up to 20% of incoming remittances for outgoing remittances through Western Union, which is an Irish company.
“Pakistan and Ireland have entered into double taxation agreements, while there is no permanent establishment of Western Union in Pakistan,” Bostan said, adding that “no withholding tax is is generated in the light of the double taxation agreement and other related laws”.
However, field training officers had issued notices demanding income tax as well as a fine (surcharge), “which is illegal”, he said.
If the FBR collects WHT on outgoing remittances via Western Union, in violation of the double tax treaty, then “this could lead to a devaluation of the rupee by 25-30%, the recovery of which would be impossible”, a- he declared.
In another development, the FBR proposed to install point of sale (POS) in all branches of foreign exchange companies operating throughout the country to document the sale and purchase of foreign currency at the retail level.
“We welcome this development,” said Secretary General of the Association of Exchange Companies of Pakistan (ECAP), Zafar Paracha, adding that “we are already documenting transactions, since we are buying and selling foreign currencies through through a biometric procedure”.
Published in The Express Tribune, January 20and, 2022.
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