KARACHI: The State Bank of Pakistan (SBP) said on Sunday that there is no change in State Bank’s existing regulations regarding foreign currency accounts and income tax filers can feed their foreign currency account with cash foreign exchange.
On 6th October 2020, the Federal Government issued Foreign Currency Accounts Rules, 2020 under the provisions of Protection of Economic Reforms Act, 1992.
These rules created panic among the foreign currency account holders and they expressed serious concerns on the section 4 of the Foreign Currency Rules 2020, which says, “a foreign currency account shall not be credited with any foreign exchange purchased from an authorized dealer, exchange company or money changer, expect as allowed by the State Bank through general or special permission under any law. However, foreign currency brought in from abroad and duly declared at the point of entry into Pakistan with Pakistan customs may be credited in the account.”
The State Bank of Pakistan on Sunday reacted on this matter and in a clarification on Foreign Currency Accounts Rules 2020, said that there is no change in State Bank’s existing regulations regarding FCY accounts and these regulations do not conflict with the rules issued by Ministry of Finance.
“There has been no change in the general or special permissions given by the State Bank to individuals under the foreign exchange regulations,” the SBP said.
According to paragraph iv, Chapter 6 of the Foreign Exchange Manual, foreign currency accounts can be fed by remittances received from abroad, travellers’ cheques issued outside Pakistan and encashment of securities issued by the government of Pakistan, it added.
“A foreign currency account of a citizen of Pakistan resident in Pakistan can also be fed with cash foreign currency only if the account holder is a filer as defined in Income Tax Ordinance, 2001”, SBP further clarified.
SBP mentioned that the recently issued rules aim to provide a regulatory framework for the operation of individual foreign currency accounts. Such a framework represents a continuation of the State Bank of Pakistan’s efforts to strengthen the foreign exchange regime and make it more market-oriented.
Looking ahead, SBP will continue to take steps to facilitate greater use of banking channels for individuals to meet all their foreign exchange needs.
Market sources said that despite the SBP’s clarification, there is need to amend Section 4 of the Foreign Currency Rules 2020 to restore the foreign currency account holders’ confidence.
In addition, the State Bank on Sunday issued Frequently Asked Questions (FAQs) in respect of Foreign Currency Accounts Rules for further clarification on foreign currency accounts operation.
According to FAQs, Protection of Economic Reforms Act 1992 (PERA) was amended in 2018. The amendments made in PERA included, inter alia, that federal government may make rules governing deposits into and withdrawals from the foreign currency accounts. The purpose for issuance of these rules is to provide enabling provisions for SBP to issue instructions related to deposits in FCY accounts, including those already in place as well as any that may be issued in future.
In this way, these rules aim to provide a framework for the operation of individual foreign currency accounts. In addition, the rules also formalise the mandate given to SBP to strengthen the foreign exchange regime and to make it easier for the individuals to meet their foreign currency needs through banking channels.
SBP said that there is no change in State Bank’s existing regulations regarding FCY accounts and these regulations do not conflict with the rules issued by Ministry of Finance.
In addition, these rules will not have any impact on the newly introduced Roshan Digital Accounts (RDA) for Non-Resident Pakistanis. SBP mentioned that RDA is a distinct scheme for Non-Resident Pakistanis, offering both FCY and PKR accounts. Funds can be received into these accounts from abroad but they cannot be fed from within Pakistan. Proceeds of investments, profit thereon and any balances in these accounts are freely repatriable without any approval or hindrance.
SBP specifically commenting on the Para 4 of the Foreign Currency Account Rules 202 issued by MoF, further clarified that since SBP has already provided a general permission for filers to deposit foreign currency into their FCY account and similarly general permission is also in place for the purchase of FCY from Exchange Companies under the Exchange Companies Manual, filers can continue to deposit cash in their FCY accounts.
According to FAQs, there will be no difficulty for foreign currency account holders for sending money for education fee of their children. As per current practice, money for education fee of children can be sent through an individual’s Pak Rupee as well as FCY account. The bank, on an application from the customer along with fee voucher, debits the customer’s account and transfers the fee to the educational institution abroad. Payment allowed includes application/processing charges, tuition fee, living expenses etc.
There is also no change for medical treatment remittances and as per current practice, a bank, on receipt of an application from its customer along with invoice of the hospital / clinic/ necessary documents, will debit the customer’s Account and remit the funds to the hospital / clinic abroad.
State Bank mentioned that it has been supporting the freelancer Community and IT exporters over the past many years, with a view to promote their business and especially exports.
Entities engaged in exports of IT services can open special foreign currency accounts under the existing regulations and can retain up to 35 percent of their export proceeds for their foreign exchange needs like payment of commission/discount to the overseas agents/buyers, meeting expenses such as promotional publicity, import of Hardware/Software, foreign consultant’s fee etc.
In order to facilitate freelancers, State Bank has opened up Pakistan Remittance Initiative channels for them to conveniently receive proceeds of their services. Freelancers receiving remittances using this channel are also allowed to repatriate up to 35 percent of the export earnings through their PKR denominated bank account in Pakistan for outward remittances.
Moreover, freelancers that are engaged in export of their services and receive payment in foreign currency can open special FCY retention accounts and retain up to 35 percent of proceeds from export of services received in FCY. State Bank will continue to take further steps to promote export of IT services.
Going forward, SBP is planning to take some more steps in the context of facilitating the individuals to meet their foreign currency needs. SBP’s medium-term objective is to promote digitisation in banking, reduce the use of cash and lessen the need for any individual to physically visit a branch for routine transactions. In this regard, SBP will continue to encourage the use of banking channels for conducting financial transactions.
Copyright Business Recorder, 2020
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