The government has decided to abolish 0.6 percent withholding tax on cash withdrawals from banks/issuance of banking instruments by customers bringing foreign remittances into Pakistan from July 1, 2020 to encourage use of formal (banking) channels.
Adviser on Finance Dr Abdul Hafeez Sharikh has asked FBR for amendment in Income Tax Ordinance through finance bill.
The adviser sought that to leverage home remittance customers and encourage them to use banking channels, withholding tax will be exempted from July 1, 2020 on cash withdrawal or on issuance of banking instruments/transfers from a domestic bank account to the extent of remittances amount received from abroad in that account in a year.
Sources said that the adviser on finance has recounted government's measures so far taken to increase foreign remittances through banking channel in the context of the World Bank (WB) forecast that the COVID-19 may heavily impact remittances inflow and stated that the WB estimates were based on unrealistic facts without considering government's efforts to give a boost to remittances during the current fiscal year.
The government was optimistic to achieve $24 billion foreign remittances in the fiscal year (2019-2020) in pre-COVID scenario as result of various incentives provided to boost remittances through bank channels, however, now the remittances are being projected $20-$21 billion in the current fiscal year, less by US $3 to US $4 billion from the $24 billion target for the current fiscal year.
The adviser on finance also stated that a "National Remittance Loyalty Program" will be launched from September 1, 2020 with the collaboration of major commercial banks and government agencies through which various incentives will be given to remitters through mobile apps and cards, and a technical supplementary grant of Rs.9.65 billion would be made available to reduce the lag time from 12 to six months in reimbursement of TT charges to banks on home remittances.
Additionally, he stated that the present government has improved its diplomatic relations with the Gulf States, which helped to restore the confidence of foreign employers in Pakistani workforce.
Resultantly, export of manpower has increased to 491,854 during July-February, 2020.
On January 12, 2020, after remittances were $11.4 billion for July-December 2019-20, Finance Ministry stated that the growth in foreign remittances are likely to continue for the rest of year due to host of government measures that may help to achieve $24 billion target set for the current fiscal year.
The Finance Ministry recounted these measures to encourage and facilitate the overseas Pakistanis to send their remittances through official banking channels, various initiatives have already been provided by the government, which include; (i) the prevailing rate of TT charges has been enhanced from SAR 10/- to SAR 20/- for transactions between USD 100-200. It would cost an additional amount of Rs3 billion to the government; (ii) the existing incentive scheme for the marketing of home remittances i.e Re1 against USD 1 of remittance amount beyond 15 percent growth over last year may now be based on tiered growth i.e Rs0.50 on 5 percent growth, Rs0.75 on 10 percent growth, and Re1 on 15 percent growth.
It would cost an additional Rs600 million to the government.
On Tuesday, however, the Ministry of Finance stated that remittances inflows are expected to reach $20-$21 billion in fiscal year 2020.
The government measures announced recently to boost remittances have paid off with remittances touched $17 billion level during the first nine months of the current fiscal year (Jul-Mar, fiscal year 2020) against $16 billion last year, registering a growth of 6.2 percent.
"This trend shows that apprehensions and estimates as reported recently in the media with regard to estimates of the World Bank that there will be no inflows of remittances from March onwards, are highly unrealistic and on the basis of current trend in remittances and estimated COVID-19 impact, the figure of remittances inflows is expected to reach $20-$21 billion in fiscal year 2020," the ministry added.
The Finance Division has also pointed out that while the media reports quoted the World Bank as projecting 23 percent decline in remittances, totaling about $17 billion in 2020, "compared with $22.5 billion in 2019, due to the economic crisis induced by the Covid-19 pandemic and shutdown as well as decline in oil prices." However, in reality, the remittances inflows during fiscal year 2019 stood at $21.7 billion instead of $22.5 billion.
The Finance Ministry further maintained that the WB estimates are based on unrealistic facts without considering government's efforts to give a boost to remittances during the current fiscal year.
There is no doubt that the COVID-19 has created multiple economic challenges owing to lockdown, a slowdown in business and declining oil prices, hence, it may also slowdown inflow of remittances.
The magnitude of pandemic impact on remittances is, however, dependent on the intensity and duration of COVID-19.
It seems that the World Bank has taken a hypothetical worst-case scenario without considering ground realities.
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