ISLAMABAD: Estimating a shortfall of about 16 per cent against the target for the current financial year, the government has decided to facilitate remittances from overseas Pakistanis through tax exemptions and other incentives under a special loyalty programme with effect from the start of next fiscal year.
The downward revision in the current year’s target for remittances has been made following economic downturn in the Middle East after oil price plunge coupled with the effects of coronavirus pandemic.
The ministry of finance on Tuesday said the remittances were estimated to reach $20-21 billion by the end of current fiscal year on June 30, down by 13-17 per cent against a budgeted target of $24bn.
The ministry said it would be taking important decisions in the months ahead to leverage home remittance customers and encourage them to use banking channels. For this “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”, said the ministry, adding that the Federal Board of Revenue had been asked for amendment in the Income Tax Ordinance through the finance bill.
The amount is estimated to reach $20-21bn by June 30 against a budgeted target of $24bn
Also, a ‘National Remittance Loyalty Programme’ will be launched from September 1 with collaboration of major commercial banks and government agencies through which various incentives will be given to remitters through mobile apps and cards.
In addition, a technical supplementary grant of Rs9.65bn had been approved to reduce the lag time from 12 to 6 months in reimbursement of TT (telegraphic transfer) charges to banks on home remittances.
Besides the above measures, the government is also improving its diplomatic relations with the Gulf States which helped to restore the confidence of foreign employers in Pakistani workforce, said the ministry, adding that the measures announced recently have paid off as remittances have already touched $17bn level during the first nine months (July-March) of the current fiscal year against $16bn last year, registering a growth of 6.2pc.
The ministry termed unrealistic recent estimates of the World Bank that there will be no inflows of remittances from March onwards on the basis of current trend in remittances and estimated Covid-19 impact and insisted that the figure of remittances inflows is expected to reach $20-$21bn in FY2020.
It said that in order to encourage and facilitate the overseas Pakistanis to send their remittances through official banking channels, various initiatives have already been taken by the government. Under these measures, the prevailing rate of TT charges has been enhanced from 10 to 20 Saudi Riyals for transactions between $100 and $200. It would cost an additional amount of Rs3bn to the government.
Also, the existing incentive scheme for the marketing of home remittances i.e. Re1 against $1 of remittance amount beyond 15pc growth over last year would now be based on tiered growth i.e. 50 paisa on 5pc growth, 75 paisa on 10pc growth and Re1 on 15pc growth. It would cost an additional Rs600 million to the exchequer.
The Finance Division challenged the World Bank estimates of last week projecting 23pc decline in remittances, totalling about $17bn in 2020, compared with $22.5bn in 2019, due to the economic crisis induced by the coronavirus pandemic and shutdown as well as decline in oil prices. “In reality, the remittances inflows during FY2019 stood at $21.7bn instead of $22.5bn,” the ministry said.
The finance ministry said the World Bank estimates “are based on unrealistic facts without considering the government’s efforts to give a boost to remittances during the current fiscal year”.
The ministry, however, conceded that there was no doubt that Covid-19 had created multiple economic challenges owing to lockdown, a slowdown in business and declining oil prices, which may also slow down inflow of remittances. The magnitude of pandemic impact on remittances is, however, dependent on the intensity and duration of Covid-19.
Published in Dawn, April 29th, 2020