All the exchange companies Wednesday threatened to shut their businesses if the federal and Sindh governments impose any new taxes including Federal Excise Duty (FED) or Sales Tax (ST).
All the exchange companies have received separate notices from the Federal Board of Revenue (FBR) and Sindh Revenue Department to levy Federal Excise Duty and the Sales Tax on all the exchange companies from July 1, 2013.
The federal government is planning to collect 16 per cent FED on gross profit of exchange companies while the provincial government will receive 14 per cent Sales Tax.
Pakistan Forex Association (PFA) President Malik Bostan said, “Exchange Companies are already paying 33 per cent income taxes to the federal government and six per cent on rent, and if the federal and provincial governments levy taxes of another 30 per cent on exchange companies, it would be an injustice with them.”
Bostan said the decision of the governments may badly hurt the exchange rates and remittances inflows, while the dollar has already started moving up in the open currency market after this notification.
The dollar is being traded at around Rs 106 in the open currency market, up by Rs 1, in the last one week. The dollar in interbank market stands at Rs 104.77. There are reports, however, that the exchange companies are deliberately increasing the exchange rates without any increase in demand.
“Of course, the exchange companies will pass such burden on to the customers. I believe the dollar will go up against rupee which will destroy all efforts of the government to maintain a balance in the exchange rate,” Malik Bostan told Pakistan Today.
He said the sales tax was imposed in June 2014-15, but was withdrawn by the government. Now the Federal Board of Revenue has started sending notices for 16 per cent of FED, along with 14 per cent Sales Tax. He said that tax and duty have already been recovered from two companies.
“We are already paying a huge amount in taxes to the federal government and if the government levies another tax, we will close all our franchises and then the entire business. This is going to be another crisis for the government,” said Zafar Pracha, General Secretary Exchange Companies Association of Pakistan (ECAP).
Malik Bostan said the Association has approached the tax tribunal, while a petition has been prepared to file in the Sindh High Court against both the governments. We have sent a letter to the federal and provincial governments in which we sought time to meet them and requested for withdrawal of these taxes.
Around 50 per cent of remittances are coming into the country through exchange companies and these transactions are made free of cost. However, banks are getting a benefit under a State Bank scheme that allows them to charge a fee on each transaction.
“We are getting notices for the payment of excise duty and sales tax from 2013 which means they want to eat up our entire paid-up capital,” said Pracha, adding that “we will sit on roads soon”.
If these problems persist for a long period, the experts said illegal dollar trading may flourish while the exchange rate may see massive imbalance in favour of the dollar.
“Finance Minister Ishaq Dar had taken back the decision of the FBR and the Sindh Revenue Department in 2014 and assured these taxes would not be levied on the exchange companies. So, why has the FBR sent notices to the exchange companies,” Bostan said.
“These threatening notices created panic among the people of the exchange business,” Bostan said, and added that the foreign transfer companies take 10 per cent of inward remitted amounts while they have to pay 10 per cent tax on each expense amount to the FBR. Moreover property tax and excise taxes are paid to the provincial governments.