Govt reviews proposal to relax foreign currency inflow limits

The federal government is reviewing proposals to relax foreign currency inflow limits under Section 111(4) of the Income Tax Ordinance, including a plan to allow individuals to bring unlimited foreign currency into the country, subject to certification by the State Bank of Pakistan (SBP), The Express Tribune reported, citing official sources. 

The proposal would require the SBP to certify the legitimacy of the sender and recipient to address concerns related to money laundering and unexplained income.

Another option under consideration is increasing the current Rs5 million annual “no-questions-asked” threshold on foreign remittances, which officials say has become outdated due to declining purchasing power.

Under existing law, the Federal Board of Revenue cannot question the source of foreign exchange remitted through formal banking channels if the amount does not exceed Rs5 million in a tax year and is supported by a bank certificate.

Officials said no final decision had yet been taken, although discussions were at an advanced stage.

A few years ago, the threshold was reduced from Rs10 million to Rs5 million to limit the conversion of untaxed money into legal assets without disclosure of income sources.

The previous government had also proposed replacing the Rs5 million threshold with an annual limit of $100,000 in the 2023 budget, but the amendment was later withdrawn after objections from the International Monetary Fund.

At current exchange rates, Rs5 million equals around $17,900, while $100,000 is equivalent to nearly Rs28 million.

According to budget proposals submitted by Tola Associates, increasing the declaration threshold to $100,000 could potentially mobilise up to $20 billion annually through repatriation of FATF-compliant overseas assets.

The advisory firm argued that Pakistan already permits outward remittances of up to $100,000 per person annually and suggested that rationalising inflow rules could also help conserve $1-2 billion in foreign exchange outflows.

Tola Associates also proposed offering a tax-free incentive of Rs10 per US dollar remitted through formal banking channels, which it estimates could increase formal remittances by $4-5 billion annually.

The firm further stated that stronger foreign inflows could support external sector stability even without an IMF programme.

According to the proposal, if inflows materialise, the rupee could appreciate to Rs250 against the dollar, inflation could moderate to around 6%, and economic growth could accelerate to 5% in the next fiscal year.