Ministry of Finance and Revenue, Government of Pakistan issued a notification on October 09, 2020, for introducing the rules named ‘Foreign Currency Accounts Rules, 2020.’ These rules have been formulated under the provisions of the Protection of Economic Reforms Act, 1992. The complete notification can be accessed at the following link:
http://www.finance.gov.pk/SRO_FCAR_2020.pdf
According to clause 3, sub-section 4, individuals have been barred from depositing money into their foreign currency accounts after buying it from the local money market. The clause mentions the following:
A foreign currency account shall not be credited with any foreign exchange purchased from an authorized dealer, exchange company or money changer except as allowed by the State Bank through general or special permission under any law. However, foreign currency brought in from abroad and duly declared at the point of entry into Pakistan with Pakistan Customs may be credited in the account.
This step is being seen as an initiative to prevent money laundering. Before these rules, an individual could buy dollars from foreign exchange companies and deposit them into their foreign currency accounts. The devaluation of the Pakistani Rupee against the Dollar would then benefit such individuals. Some individuals would also deposit dollars into foreign currency accounts for their genuine requirements such as foreign educational expenses and foreign medical expenses.
This notification may also affect the active tax filers who could use the foreign currency accounts for meeting their genuine needs. Now foreign current accounts can only be fed from outside Pakistan and the account holders cannot deposit foreign currency purchased locally. The move may also encourage the undocumented accumulation of foreign currency such as in bank lockers or at home.
State Bank of Pakistan further clarified on October 9, 2020, that according to paragraph iv, Chapter 6 of the Foreign Exchange Manual, foreign currency accounts can be fed by remittances received from abroad, travelers’ cheques issued outside Pakistan, and encashment of securities issued by Government of Pakistan. A foreign currency account of a citizen of Pakistan resident in Pakistan can also be fed with cash foreign currency only if the account holder is a filer as defined in Income Tax Ordinance, 2001.
State Bank of Pakistan also published Frequently Asked Questions (FAQs) regarding Foreign Currency Accounts Rules, which can be accessed at the following link:
https://www.sbp.org.pk/press/2020/Pr-FAQS-11-Oct-20.pdf
In answer to Question 4 of FAQs, it is mentioned:
Since SBP has already provided a general permission for filers to deposit foreign currency into their FCY account and similarly general permission is also in place for the purchase of FCY from Exchange Companies under the Exchange Companies Manual, filers can continue to deposit cash in their FCY accounts.