In an effort to stop money laundering and tighten control over transfer of foreign currency in and out of the country, the Ministry of Finance has imposed major restrictions on individuals having foreign currency accounts in Pakistan from October 9, 2020 – which seemingly have made dollar accounts almost dormant.
According to new rules “a foreign currency account shall not be credited with any foreign exchange purchased from an authorised dealer, exchange company or money changer except as allowed by the SBP through general or special permission under any law.”
A foreign currency account of an individual may be credited with the remittances received from abroad through the banking channel. However, the Statutory Notification (S.R.O.) issued by the Ministry of Finance and Revenue clarified that payments for goods exported from Pakistan, payments for services rendered in or from Pakistan, proceeds of securities issued or sold to non-residents and any foreign exchange from borrowed from abroad under any general or special permission of the State Bank will not be credited as remittances.
Foreign currency brought from abroad and dully declared at the point of entry into Pakistan with the Pakistan Customs may be credited in the account. Furthermore, there will be no restriction on cash withdrawal or transfer from the foreign currency account, the new regulations said.
The S.R.O said that the federal government has exercised the authority granted to it under Section 11, and the second proviso to sub-section (4) of Section 5 of the Protection of Economic Reforms Act, 1992.
While these rules will control the flow of foreign exchange in and out of the country, many commentators have expressed concern at the stringent nature of the rules and their potential to create hurdles for the citizens of Pakistan.
According to Tola Associates – a tax and corporate advisory firm based in Karachi – the new rules will cause great difficulty for parents who are sending fees for their children abroad. Most of parents in Pakistan buy dollars from currency dealers and sent fees abroad – many have already done so in advance.
While speaking to The Correspondent, CEO of Shajar Capital, Rehan Attique, said parents would now need special permissions from State Bank for transferring fees; it would be a LC document style procedure.
Similarly, IT sector and e-commerce platforms that are rendering services abroad would now face great difficulty. They receive foreign exchange against their sale proceeds through currency exchanges as Pakistan does not have international platforms like PayPal. These professionals also pay for digital tools through foreign currency accounts for which they buy dollars from open market or exchange dealers.
According to Tola Associates, such restrictions will drain out around 7 billion dollars and compel many people to open off-shore accounts to manage finance requirements.