ISLAMABAD: During a major move to facilitate overseas Pakistanis, the Federal Board of Revenue (FBR) on Monday dropped all its departmental appeals immediately filed over the last over seven years on the interpretation of law concerning availing of exemptions on foreign remittances.
The controversy erupted when the FBR’s Inland Revenue Service field formations refused concessions in some situation on foreign remittances sent via Money Services Business (MCBs), Money Transfer Operations (MTOs) and Exchange Companies (ECs)—like Money Gram, Western Union and Ria France etc.
After this decision, overseas Pakistanis now can avail tax break on foreign remittances sent through MTOs, ECs and MCBs besides scheduled banks.
This facility is over and above the govt decision to launch from Oct 1 the National Remittance Loyalty Programme, which allows redemption in cash of reward points earned by the overseas Pakistanis for sending a refund home through official channels.
Under the tax Ordinance 2001, the govt has mentioned four conditions for claiming of advantages on for foreign remittances — the remitted amount is in foreign exchange; it’s sent into Pakistan through normal banking channels; it’s encashed by a scheduled bank in rupees; and a certificate is produced thereto effect from such bank.
A detailed tax Circular no. 5 of 2021 was issued to resolve the difficulty and facilitate the overseas Pakistani.
In this background, the FBR has decided to eliminate all cases of claim of foreign remittances by according lenient interpretation to the conditions stipulated under section 111 (4) of the ITO 2001.
The board has announced to withdraw immediately all departmental appeals filed on the stricto sensu interpretation of the law so as to win the trust of overseas Pakistanis and spare the general public resources for more productive use elsewhere.
The FBR has also barred field formations from filing further appeals on an equivalent issue.
A judgment of IR Tribunal in 2013 held that each one these four conditions are mandatory for availing the power .
But contrary to the present , the depository financial institution of Pakistan in response to Federal Tax Ombudsman in 2019 has categorically took the position that exchange remitted into Pakistan via MCBs, ECs and MTOs does constitute exchange remitted through normal banking channels for all legal purposes.
In March this year, the FBR challenged the SBP position of legitimising remittances via MCBs, ECs and MTOs and equating them with scheduled banks as laid down in section 111 (4) of the ITO 2001.
On May 7, 2021, the SBP skilled all four questions of the FBR and observed that a taxpayer receiving home remittances vis MCB and ECs strictly fulfills all the conditions of set section 111 (4) (a) of the ITO 2001.
It said under the exchange Regulations Act 1947, the SBP is that the institution to attend to all or any matters concerning dealings in exchange and securities and therefore the import and export of currency.
The SBP further said the financial institution is that the frontline regulator of all exchange getting into or outside the country is within the best position to make a decision on whether the required legal requirements are met or not of a specific transaction to be ready to avail of the advantages cover under tax laws.
Overseas Pakistanis remitted record $29.4 billion during 2020-21, helping the country meet its widening deficit .
