Scope of Foreign Remittances Expanded
Scope of Foreign Remittances Expanded via Section 111(4) and Cir. 06 of 2021, August 30, 2021: Foreign remittances are exempt where the annual amount up to Rupees five (05) million is received through normal banking channel. Recently, Federal Board of Revenue has issued a circular whereby it clarified that foreign amount remitted through Money Services Business (MSBs), Exchange Companies (ECs), Money Transfer Operations (MTOs) would also be considered as bona fide remittances as received through normal banking channels.
The above circular was necessitated in backdrop of the famous controversy, which arose after the Income Tax department denied exemption on foreign exchange remittance made through Money Services Business (MSBs), Exchange Companies (ECs), Money Transfer Operations (MTOs) on the premise that money transferred through these channels did not meet the banking channels legal requirements by placing reliance on the judgment of Appellate Tribunal Inland revenue dated 10 October 2013 whereby it was held that all the following conditions are mandatory to claim exemption on Foreign remittances:
(vi) the remitted amount is in foreign exchange,
(vii) the amount is remitted through normal banking channels,
(viii) the amount is enchased by a schedule bank,
(ix) a certificate of encashment is issued by the bank concerned.
On the contrary the State Bank of Pakistan (SBP) being a mother regulator of foreign exchange business has the prerogative to decide as to whether all the legal requirements have been met or not.
It, therefore, in its letter dated 07 May 2021 categorically explained its
position that foreign exchange remitted into Pakistan through these channels duly fulfill the above conditions.
Hence the Circular was duly issued on August 2021 after which the FBR withdrew all pending appeals filed previously against the claim of exemption on foreign remittances. It also directed to the Filed Formations to restrain from filling further appeals in this respect.
In order to give the due legal coverage to the same, an explanation vide amendment Ordinance has now been added under Section 111(4) of the Ordinance whereby it is clarified that MSBs, ECs, MTOs such as Western Union, Money Gram and Ria Finance or other like entities shall be deemed normal banking channel for the purpose of foreign remittances.
It is notable that the amendment through the insertion of “Explanation” clearly dispels any iota of doubt of any probability of someone invoking the same in retrospect. It has therefore been intended that the legislature has given the desired exemption retrospectively.
For more information on FBR’s new regulations / circulars/ SROs/ amendments in taxation laws in Pakistan please visit https://www.fbr.gov.pk/