The initiative to attract investment from expatriate Pakistanis through the Roshan Digital Account (RDA) has gained momentum and a spike in inflows is anticipated for the months ahead.

The country has attracted half a billion dollars from overseas Pakistanis in five months since the launch of RDA in September 2020. Almost 50% of the inflows came in the last six weeks. They are estimated to amount $1-1.5 billion over the next 5-10 months.

The inflows have helped the government reduce its reliance on foreign financing, which is raised through international bonds such as Eurobond and Sukuk. The inflows are strengthening the country’s foreign currency reserves and improving its capacity to make international payments. Prime Minister Imran Khan has praised overseas Pakistanis for the second time in the past two days for their meaningful contribution to the country.

“I want to thank our overseas Pakistanis for responding so strongly to SBP’s Roshan Digital Accounts,” PM Khan said on his official Twitter handle on Tuesday. He added that 87,833 accounts had been opened from 97 countries around the world and $500 million had been sent to Pakistan in just five months. “Momentum continues to rise with $243 million coming in last six weeks alone,” he said in the tweet.

Earlier on Monday, the premier lauded overseas Pakistanis for sending lofty remittances of over $2 billion for the eighth consecutive month in January.

Pakistan offers lucrative returns to non-resident Pakistanis on investment in savings certificates, real estate, stocks and debt instruments through the RDA. The government has announced tax incentives and simplified tax rules under the RDA with an aim to create a comfort zone for the investors.

“Inflows through RDA may reach $1 billion by the end of June and $1.5 billion by the end of December 2021,” Pak-Kuwait Investment Company (PKIC) Head of Research Samiullah Tariq said while talking to The Express Tribune.

“This is like issuing a small bond (by the government to raise financing) in the international market,” he said. An additional benefit of RDA is that the government will not have to repay the entire amount back to investors in one installment, which it has to do on the maturity of international bonds.

Consequently, the outflow from the RDA may not be huge at any point in time since the number of investors is higher compared to the ones who purchase international bonds.

“In this backdrop, the foreign exchange reserves will remain sustainable because of RDA inflows,” he said. Pakistan has the potential to attract $3-4 billion through the RDA, which the overseas Pakistanis may be keeping in foreign schemes and banks.

“The use of technology and launch of digital applications like Raast (the instant payment system recently launched by the State Bank) will make overseas Pakistanis comfortable while investing massive amounts of capital in their homeland,” Tariq said.

Pakistan has made efforts to shift to online banking during the ongoing Covid-19 pandemic. “The pandemic has proved to be a blessing in disguise for Pakistan.”

SBP Governor Reza Baqir said the other day the availability of online banking infrastructure had played a vital role in connecting overseas Pakistanis to their homeland through the RDA. Seasoned stockbroker and businessman Arif Habib urged non-resident Pakistanis to invest in different schemes through the RDA as “higher returns on investment are a lifetime opportunity for them.” He estimated that Pakistani expatriates earned around $60 billion a year.

They spend around 50% of the amount in their host country and send the remaining 50% to their homeland every year.

They have sent $16.47 billion in the first seven months (July-January) of the current fiscal year 2020-21 to their family and friends back in Pakistan under the head of workers’ remittances, which are 24% higher compared to $13.27 billion dispatched in same period last year.

The inflows under RDA are considered additional worker’s remittances.

Simplified rules

The government has introduced several amendments in Income Tax Ordinance 2001 through Tax Laws (amendment) Ordinance 2021 to make the taxation regime simple, convenient and hassle-free for non resident Pakistanis (NRPs) maintaining RDAs, SBP said on Tuesday.

NRPs investing in Naya Pakistan Certificates (NPCs) through their RDAs were already under the full and final taxation regime, it said.

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,” it said. “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 subjected to tax on cash withdrawals and bank transfers that are applicable on non-filers.

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

The capital gains on shares and mutual funds are also taxed at 15%, the same rate that is applicable on filers.

Published in The Express Tribune, February 17th, 2021.

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