KARACHI: Prime Minister Imran Khan on Tuesday expressed satisfaction over foreign exchange inflows via the Roshan Digital Accounts (RDAs) which reached $500 million.

“I want to thank our Overseas Pakistanis for responding so strongly to SBP’s #RoshanDigitalAccounts. 87,833 accounts opened from 97 countries around the world. $500 million sent to Pakistan in just 5 months. Momentum continues to rise with $243 million coming in last 6 weeks alone,” PM Khan tweeted.

The RDA — a joint initiative of the government and the State Bank of Pakistan (SBP) in collaboration with commercial banks operating in the country — was inaugurated by the premier on Sept 10, 2020.

The main purpose of the initiative is to attract millions of Pakistanis living abroad by offering much higher returns on deposits compared to returns in the developed economies.

Taxation regime further simplified for diaspora

Commercial banks are also showing keen interest for participation in the scheme as they believe the RDA has great potential and could help Pakistan reduce its foreign exchange borrowing from international donors and commercial banks. The huge borrowing cost Pakistan over $14 billion as debt servicing in FY20.

SBP governor Reza Baqir recently said the outcome of the RDA initiative so far has been very promising, with the number of accounts and amounts remitted and investment growing every day.

Till the end of January, over $300 million had been invested in Naya Pakistan Certificates (NPCs) — which offers attractive returns — reflecting that higher inflow under the RDAs are coming as investment in the certificates.

The SBP governor was hopeful that more banks would participate in the scheme and become part of the fast evolving digital financial ecosystem of the country.

Bankers said the opening of new channel of RDA could prove alternative for the investment in T-bills and PIBs while it has greater potential for both residential and non-residential Pakistanis.

Amendments to tax laws introduced

Meanwhile, the SBP on Tuesday said the government has made the taxation regime simple, convenient and hassle-free for NRP maintaining RDAs.

Based on feedback from the diaspora and recommendations from SBP, the federal government has introduced several amendments in the Income Tax Ordinance 2001 through Tax Laws (amendment) Ordinance 2021 to make the taxation regime simple for NPRs maintaining RDA, said the SBP in a press release.

The amendments simplify and reduce the tax compliance cost for the NRPs maintaining RDAs. While the NRPs investing in NPCs through their RDAs were already under the full and final taxation regime, the amendments have extended the coverage of full and final taxation regime to dividends and capital gains on shares and mutual funds’ investments made through RDAs and capital gains on real estate investments made through RDAs.

“As a result, NRPs will not need to file tax returns against their income derived from investment made through RDAs under the above heads,” said the SBP.

With this removal of return filing requirements, NRPs having RDAs have also been insulated from penalties (doubling of tax rate) due to their absence from the Active Taxpayer’s List (ATPL).

Further, NRPs with RDAs will not be subject to tax on cash withdrawals and bank transfers that are applicable on non-filers, it added.

While the profit on debt on RDA deposits is tax exempt, the tax rate on profits on NPCs is 10 per cent for both NRPs and resident Pakistanis having declared assets abroad, and 15pc on dividends received from mutual funds and companies (except IPPs and tax exempt companies, which are taxed at 7.5pc and 25pc, respectively).

The capital gains on shares and mutual funds are also taxed at 15pc, the same rate that is applicable on filers. In addition, a tax of 1 per cent of the value of the purchase or sale will be payable by the NRPs both at the time of purchase and sale of real estate, which will be the full and final discharge of tax liability of NRPs against capital gains on real estate investments made through RDAs.

The simplification of the taxation regime is likely to give a further boost to the RDA scheme, which has already attracted considerable inflows from NRPs in the five months since it was launched.

Published in Dawn, February 17th, 2021