FBR withdraws appeals related to exemption on foreign remittances

KARACHI: The tax authorities have withdrawn all the appeals it filed against the claim of exemption on foreign remittances, a senior official said on Monday.

“The FBR [Federal Board of Revenue] has withdrawn the appeals on satisfactory response from the State Bank of Pakistan (SBP) on the issue of foreign remittances through banking channels,” the senior official at the FBR said.

The official said that thousands of cases were filed against the claims made by the exchange companies, money transfer operators, and Overseas Money Service Bureaus.

The revenue board has an interpretation that the money transferred through these channels was not qualified for the exemption under the Income Tax Ordinance, 2001.

In this regard, the FBR also issued a circular saying that the SBP has been asked to give an opinion on the matter pertaining to four conditions.

“The SBP having unequivocally responded to all four critical questions, that is, foreign exchange out to originate overseas, must reach and be surrendered to [the] SBP, and transactions should leave a banking trail behind, have been answered affirmatively.”

The revenue board said the central bank under the Foreign Exchange Regulations Act, 1947, attended all the matters pertaining to dealing in foreign exchange and securities and the import and export of the currency.

“Therefore, the SBP being the frontline regulator of all foreign exchange moving into or outside the country, is in the best position to decide as to whether the necessary legal requirements have been met or not of a particular transaction to be able to avail the benefit cover under [the] tax laws.”

The FBR directed the field formation that all cases of the claim of foreign remittances be disposed of according to the lenient interpretation of the conditions stipulated in Section 114 (4) of the Income Tax Ordinance, 2001.

“Moreover, in order to win the trust of the taxpayers and spare the public resources for more productive use elsewhere, all departmental appeals filed on the strict sensu interpretation of the law, be withdrawn immediately, and no further appeals be filed if on all fours of this clarification.”

The FBR also rescinded all the circulars and the previously issued instructions on the matter.

The revenue body issued the latest notification to resolve the controversy that was loomed for quite some time, as innovation in banking, money transfer mechanisms and development of newer products for cross-border transactions have outflanked the letter of the law, as now exchange companies, money transfer operators and Overseas Money Service Bureaus perform almost identical to those of the scheduled banks.

“In some situations, the offices of Inland Revenue have refused concessions vis-à-vis foreign remittances remitted via ECs [exchange companies], that is, Money Gram, Western Union, and Ria France, etc, relying on an Appellate Tribunal of the Inland Revenue’s judgement dated October 10, 2013.

“It has been seen that the aforementioned four conditions are mandatory to claim the benefit of foreign remittances under the Income Tax Ordinance, 2001.”

The SBP in its response to the FBR on May 7, 2021, said: “To claim [an] exemption under [the] aforementioned clause of [the] Income Tax Ordinance, 2001, a taxpayer receiving home remittances, via Money Service Bureaus and exchange companies strictly fulfils all the conditions set in Section 111(4) of the Income Tax Ordinance, 2001.”