After scams worth tens of millions, SBP disallows paying phone tax online 

LAHORE: In a recent development, the State Bank of Pakistan (SBP) has disallowed banks to process mobile import levy payments through internet banking and mobile phone banking channels because of a surge in fraudulent transactions.  

Certain taxes, such as the mobile phone imports levy collected by the Federal Board of Revenue (FBR) can be paid through the Alternate Delivery Channels (ADCs) of the banks. ADCs are mediums of making payments through channels such as mobile banking, internet banking, ATMs and over-the-counter (OTC) at a bank branch. 

According to the new instructions given by the central bank on December 20, mobile phone imports levy can now only be collected through ATMs or through OTC channels. 

What has brought about this policy that now stops two major digital channels of payments altogether for mobile phone imports levy? Firstly, the level of scam was big in which scammers would get access to customer bank accounts and then use their money to make payments for import tax for mobile phones. 

According to sources familiar with the matter, the amounts that people were defrauded ran in tens of millions of rupees, but was short of a billion rupees. 

This not only led to monetary losses for the bank since according to a banker, who commented anonymously, it is difficult for the banks to recover this money from the FBR because of government’s struggles with taxation, in case customer files a dispute, it is also an image problem for the bank if it is not able to protect its customers’ money. 

Bankers that we spoke to agreed that just like the government suspends cell phone service for everyone fearing a violent attack by a certain someone, the measure also reflects a similar thinking of “if you can’t control it, suspend it”, some also said that blocking digital modes has a good rationale behind it. 

A CEO of a mobile phone manufacturing company told Profit that the restriction is tough but necessary. “For the time being, since Pakistan is struggling with taxation, until that is not sorted such a restriction makes sense,” he said, adding that “cyber security should be enhanced to avoid such scams as online payments is an excellent feature and helps in technology drive to modernization.”

Certain others also held an opinion that banks could strengthen controls at their ends to prevent such frauds. “People in the compliance department of banks asked for such payments to be stopped through internet and mobile phone banking,” a source said. “Because the compliance departments themselves are also questioned by their respective banks in case of frauds.”

“If banks simply strengthen their internal compliances when it comes to situations like these, the situation can be alleviated,” the source said.

A banker agreed that strengthening compliance needs to be done anyway but the there are certain challenges that need to be overcome before accomplishing a greater degree of compliance. 

Compliance challenges in this regard include putting the burden of compliance on the bank customer, for instance only allowing one such transaction in a month. “In such cases, however, legitimate phone sellers, who collect cash from customers and pay on behalf of the customer at the time of sale, get affected,” said a source in the banking industry. 

There are certain other technicalities that need to be worked before rules in this regard can be amended. For instance, compliance rules are implemented for an entity and not a certain segment that the bank is working with it on. 

For instance, FBR could have multiple taxes collected digitally from bank customers. Changing compliance rules would mean changing rules for all sorts of tax payments instead of a single cell phone import levy. 

The source added that until an alternative framework is established, a complete restriction should be in place. Once there is a better alternative, banks would be willing to open the mobile and internet banking channels for import payments. 

Another mechanism, which is reportedly in the works and proposed to the SBP, pertains to how the transactions are settled.

Najeeb Aggrawala, CEO of 1Link which is the entity that settles these transactions between banks and the FBR, says that the current measure is in the interest of people that were being scammed. There could, however, be an alternative to this approach where the settlement time for such payments is increased to a day. 

The settlement between the banks and government entities such as the FBR happens on the same day a transaction is executed. If the settlement from a bank to the FBR is moved to T+1 settlement, which is the next day’s settlement, the customer has a longer time to complain that a transaction on his/her account was fraudulent and the settlement would be stopped. The FBR would not receive the import tax money and money deducted would be reimbursed to the customer.

This would help alleviate the situation whereby some of these scams could be caught out but the entire service is not suspended.