Rizwan Tabassum / AFP - Getty Images, file
Currency dealers wait for customers at a roadside money exchange stall in Karachi, Pakistan.
ISLAMABAD -- The head of Pakistan's central bank has told legislators he believes $25 million in cash is being smuggled out through the country's airports every day, a senator said on Wednesday.
Senator Nasreen Jalil told Reuters that the central bank governor singled out smuggling as one reason the Pakistani rupee had been falling in foreign exchange trading.
Jalil said governor Yassen Anwar told a committee of parliament's upper house that he intended to try to stop the smuggling of large sums but that controls were weak. Jalil chairs the Senate Standing Committee on Finance.
"Hundi and hawala through which money flows out of the country is totally illegal but we do not have the systems and political will to stop it," said Jalil, referring to the informal money transfer systems that circumvent anti-money laundering laws.
Anwar had been questioned by the committee after the rupee sank to a record low of 110 against the dollar last week. In the capital Islamabad, some currency traders were not offering dollars for sale last week.
Jalil said the shortage had eased and the sharp decline was linked to a loan of $59 million due to be repaid to a foreign donor. On Tuesday, the rupee regained some ground to 95 to the dollar.
One reason dollars were in such high demand was the tendency of wealthy Pakistanis to convert money into dollars and send it back into Pakistan from abroad, tax lawyer Ikramul Haq said.
Since remittances are exempt from taxes and tax authorities cannot legally question the source of remittances, this would help wealthy Pakistanis evade tax, Haq said.
Only 0.57 percent of Pakistanis paid income tax last year, according to the Federal Board of Revenue. Pakistan has one of the lowest tax-to-GDP ratios in the world, leaving public services woefully underfunded.
The wealthy do not pay their share while poor Pakistanis are disproportionately hit by direct taxes on fuel, food and phone use. A study last year found that nearly 70 percent of Pakistani lawmakers did not even submit file tax returns.
Expanding the tax base was a key condition of Pakistan securing a $6.7 billion loan last month from the International Monetary Fund.
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This story was originally published on Wed Oct 2, 2013 8:07 AM EDTCopyright 2013 Thomson Reuters. Click for restrictions.