ISLAMABAD — Amid fresh pressure on the Pakistani rupee, the State Bank of Pakistan (SBP) has recommended tighter tax conditions for foreign investors in a bid to rein in unpredictable capital outflows.
In a meeting of the National Assembly’s Standing Committee on Finance on Saturday, SBP Executive Director Dr Mohammad Ali Malik suggested linking the current tax concession for foreign investors to a minimum one-year holding period. Under the proposal, the reduced 10% income tax rate would apply only if investments made through the Special Convertible Rupee Account (SCRA) remain in place for at least 12 months.
The idea, Malik explained, is to discourage short-term speculative flows and give policymakers better control over sudden currency pressures. “Most SCRA inflows are in short-term instruments like treasury bills. By tying tax breaks to longer holding periods, we can inject some stability,” he told lawmakers.
Federal Board of Revenue (FBR) Chairman Rashid Langrial supported the intent but suggested a slightly shorter holding period of six months for tax benefits on Roshan Digital Accounts and similar schemes, acknowledging investor concerns about restrictions.
However, some committee members cautioned that tighter rules could scare off much-needed foreign capital. “We must be careful not to discourage inflows at a time when the economy needs every dollar,” said Syed Naveed Qamar, the committee chairman from the Pakistan People’s Party (PPP).
Rupee Slides Again
The debate comes as the rupee faces renewed headwinds. After months of relative calm, the local currency has slipped to around Rs284 per dollar in interbank trading, with even weaker rates in the open market. Bankers say large transactions are being cleared at rates up to Rs3 higher than official quotes.
Financial advisory firm Tola Associates, in an alert issued Saturday, warned that geopolitical tensions in the Gulf, especially the ongoing conflict involving Israel and Iran, have driven up global oil prices — adding more strain to Pakistan’s fragile external position.
Crude prices have climbed from $63.76 per barrel earlier this month to above $76, and could push past $80 if hostilities worsen. “At $80, we expect the rupee to weaken to Rs285.4 per dollar; at $100 per barrel, the rupee could slide to Rs292,” the firm noted. Domestic petrol prices might also jump by as much as Rs35 per litre if oil prices surge further.
Tola Associates estimated that every $10 rise in crude oil could push inflation up by nearly 2%, amplifying an already painful cost-of-living crisis for ordinary Pakistanis.
To address the economic fallout, the government has formed a committee headed by Finance Minister Muhammad Aurangzeb to monitor the impact of the Middle East crisis on Pakistan’s fuel supplies and economic outlook.
Clampdown on Tax Loopholes
The standing committee also discussed a related loophole known as “coupon washing,” where some investors avoid taxes by selling government securities just before payouts and buying them back soon after. The FBR’s budget proposal seeks to tax such income regardless of whether securities are held to maturity. Officials say closing this loophole could net an extra Rs10 billion in revenue.
After debate, lawmakers agreed to lower the proposed minimum holding period for this rule from one year to six months to keep the measure practical while still curbing abuse.
Separately, the committee approved an increase in the threshold for cash withdrawals by non-filers, raising the limit for the 0.8% tax from Rs50,000 to Rs75,000. It, however, turned down the FBR’s pitch to hike the rate back up to 1% — a rate last used before the current budget.
