The Exchange Companies Association of Pakistan (ECAP) on Tuesday urged the government to introduce a tax exemption on foreign currency purchases of up to $2,000 in a bid to curb black market activity and ease pressure on the rupee.
In a meeting with ECAP Chairman Malik Muhammad Bostan, Inter-Services Intelligence (ISI) Director General Lt. Gen. Faisal Naseer voiced concern over the rupee’s recent depreciation against the U.S. dollar and sought insights into the development. Bostan cited the reemergence of currency smuggling mafias, alleging they were smuggling U.S. dollars and other foreign currencies into Iran and Afghanistan.
The ECAP chairman claimed agents of these networks were actively operating in major cities, targeting customers outside legal exchange outlets by offering marginally higher rates. The agents then led the customers to unlicensed offices, where their foreign currency was bought at black market prices, shrinking official supply and pushing demand underground.
Bostan also blamed the Federal Board of Revenue (FBR)’s recent rule imposing taxes on any cash transaction over Rs. 200,000. This, he said, had prompted many non-filers to bypass banking channels altogether and turn to black market dealers to avoid documentation. He proposed addressing this by waiving taxes on foreign currency purchases up to $2,000, aligning with an existing State Bank of Pakistan (SBP) circular. He said this would encourage customers to use legal exchange channels, lower the black market demand for dollars, and ultimately lead to a reduction in the exchange rate.
The ISI chief assured the ECAP chairman his suggestions would be conveyed to the government. He also ordered immediate action against currency smuggling networks, with the Federal Investigation Agency subsequently launching nationwide raids in a crackdown on illegal operators. This, claims ECAP, brought the open market dollar rate from Rs. 288.60 to Rs. 288, while the interbank rate fell from Rs. 285 to Rs. 284.80.
Speaking to media, Bostan expressed optimism that if enforcement continues, the dollar rate could drop further in the coming weeks. He urged the public to refrain from buying dollars and instead sell any foreign currency holdings, warning that holding dollars at current rates may result in losses as the rupee strengthens.
“The Pakistani rupee is undervalued,” he claimed. “The fair value of the rupee is closer to Rs. 250,” he added.
According to the ECAP chairman, the SBP has increased its reserved to $20 billion by purchasing $9 billion from the interbank market over the past nine months. The SBP’s halt on dollar purchases would stabilize and further strengthen the rupee, he said. “Selling dollars instead of buying will help stabilize the currency, strengthen Pakistan’s reserves, and support a healthier national economy,” he added.