The large ambiguity in home remittances

Home remittances have been plugging the trade deficit for past decade or so. They have proved to be the only silver lining in the current account. But it's not clear how much of inward remittances actually represents Pakistani diaspora sending money back home. There is no doubt that Pakistan Remittance Initiative (PRI) introduced in the PPP government has yielded results as part of money that used to come through Hundi Hawala system, which is now being routed through official channels to strengthen the foreign exchange reserves.

But is the initiative being misused to evade taxes or to white the black money? There is no clear answer to it, but there are suspicions that are never clearly addressed by the authorities. There is no income tax on the money sent back home, and it is white without any question. The idea is right to incentivize Pakistani living abroad to send sums back through legal channels. Its great; but if the incentive is being misused, it has to be stopped.

Grey channel operations are getting thin with tightened money laundering laws across the globe, and it will fade further once the option to keep undisclosed money in Dubai is done away with by July 2017.  SBP should also start thinking of tightening its noose around big chunks of non-diaspora money being remitting back.

The data disseminates by SBP on home remittances tells nothing about transaction details. Nobody publically knows transaction volumes and values. All what is known, in circles, is that average ticket size is $500-600 and 90 percent of transaction volumes are under $1,000. But there is no clue about what is the share of small ticket size transactions in total remittances.

One can compute the average remittances size per capita from various countries using the data of registered immigrant workers abroad. But the data is not complete as it only tells about new workers going abroad; there is no data about people coming back. In case of UAE data, the average ticket size from UAE and KSA is guesstimated at $2200-2300. It strengthens the fact that majority of transactions are small in size and nothing’s on higher ticket size transactions.

It's not publically known how many transactions are about $10K. The intriguing fact is that remittances from Dubai increased from $1.6 billion in FY14 to $2.8 billion in FY16. While the workers going there peaked in 2014, the figure is falling since then. Anecdotal evidences are that many workers came back in the last two years, data for which is not is not known.

Are the people sending money out of the country from grey channels and getting back through remittances? The data is unknown. And if that is the case, individuals may continue whitening money through remittances channel and may not opt for amnesty scheme.

Senate finance committee should have this knowledge as it helps to design amnesty scheme. There will be tax on declarations and a social taboo attached to it. With no tax on large size remittances, success of amnesty scheme will be limited.