KARACHI: The Ministry of Finance has assured the exchange companies of withdrawing the 16 per cent federal excise duty (FED) on their gross profits, but could double the recently imposed withholding tax to 0.3 per cent from the next fiscal year.
Sources said the government has also decided to withdraw notices, worth Rs150 million, issued to the exchange companies for payment of excise duty. However, money changers said the decision has not been enforced so far.
The exchange companies previously threatened to close down their outlets if the FED and a sales tax of 14pc were not withdrawn immediately.
“Finance Minister Ishaq Dar assured us that the 16pc excise duty will be withdrawn in the next budget,” said Zafar Paracha, the secretary general of the Exchange Companies Association of Pakistan, on Saturday. He met the minister on Friday in Islamabad with a delegation of currency dealers.
The government has recently started sending notices to the exchange companies for the payment of excise duty levied on their gross profits.
This triggered a rise in dollar prices and it swiftly crossed Rs106 from a long-held position of Rs105.20.
The delegation also met Special Assistant to Prime Minister on Revenue Haroon Akhtar to discuss a withholding tax of 0.15pc imposed by the government in the FY16 budget. The currency dealers were informed that the withholding tax could be doubled to 0.3pc in the upcoming budget.
The exchange rate in the open market remained relatively stable during the second half of the current fiscal year while supply was in surplus. The reports that the government has imposed 16pc excise duty on gross profits quickly increased the dollar demand while its value also started moving up against the local currency.
Since the holdings of dollars by the State Bank of Pakistan reached at a record high level, the exchange rate regime was cool and calm.
“The dollar has now come down to Rs105.40 in the open market which was the direct impact of assurance for withdrawal of excise duty,” said Malik Bostan, president of the Forex Association of Pakistan. The greenback touched Rs106 two days before.
Mr Bostan said dollars were in surplus on Saturday while its demand fell by 80pc. The selling and buying ratio reached to 80:20, he said.
Currency dealers say 50pc of the remittances sent by overseas Pakistanis come through the exchange companies and they do this job without incurring any cost to the government. In contrast, the remittances sent through the banks cost the government billions of rupees as banks are paid 20 riyals on each transaction.
“As Ramazan draws closer, high inflows of dollar are expected which could pull its rate below Rs105 in the open market,” currency dealer Anwar Jamal said.