SBP Disallows Banks To Process Mobile Import Levy Payments

Certain taxes, such as the Federal Board of Revenue’s (FBR) mobile phone import levy, can be paid through banks’ Alternate Delivery Channels (ADCs).

SBP Disallows Banks To Process Mobile Import Levy Payments

Due to an increase in fraudulent transactions, the State Bank of Pakistan (SBP) has recently prohibited banks from processing mobile import levy payments through internet banking and mobile phone banking channels.

Certain taxes, such as the Federal Board of Revenue’s (FBR) mobile phone import levy, can be paid through banks’ Alternate Delivery Channels (ADCs). ADCs are payment channels that include mobile banking, internet banking, ATMs, and over-the-counter (OTC) transactions at a bank branch.

According to the central bank’s new instructions issued on December 20, the mobile phone import levy can now only be collected through ATMs or over-the-counter (OTC) channels.

What prompted this policy, which now prohibits mobile phone import levy payments through two major digital channels? For starters, the level of scam was high, with scammers gaining access to customer bank accounts and then using their money to pay import taxes on mobile phones.

According to sources familiar with the situation, the amounts defrauded ranged in the tens of millions of rupees but fell short of a billion rupees.

This not only resulted in monetary losses for the bank because, according to an anonymous banker, it is difficult for banks to recover this money from the FBR due to the government’s struggles with taxation, but it is also difficult for customers to file a dispute, and it is also an image problem for the bank if it is not able to protect its customers’ money.

Bankers we spoke with agreed that, similar to how the government suspends cell phone service for everyone fearful of a violent attack by a certain someone, the measure reflects a similar mindset of “if you can’t control it, suspend it,” and that blocking digital modes has a good rationale behind it.

According to the CEO of a mobile phone manufacturing company, the restriction is difficult but necessary. “For the time being, because Pakistan is still struggling with taxation, such a restriction makes sense,” he said, adding that “cyber security should be enhanced to avoid such scams as online payments are an excellent feature and help in the technology drive to modernization.”

Others believed that banks could strengthen controls at their end to prevent such frauds. “People in banks’ compliance departments requested that such payments be stopped via the internet and mobile phone banking,” a source said.

“Because compliance departments are also questioned by their respective banks in the event of fraud. The situation can be alleviated if banks simply strengthen their internal compliance systems in situations like these,” the source said.

A banker agreed that strengthening compliance is necessary regardless, but there are some obstacles to overcome before reaching a higher level of compliance.

In this regard, compliance challenges include putting the burden of compliance on the bank customer, such as only allowing one such transaction per month. “In such cases, however, legitimate phone sellers who collect cash from customers and pay on their behalf at the time of sale are impacted,” said a banking industry source.

Other technicalities must be worked out before the rules in this regard can be amended. For example, compliance rules are implemented for an entity rather than a specific segment with which the bank is collaborating.

For example, the FBR could collect multiple taxes digitally from bank customers. Changing compliance rules would imply changing rules for all types of tax payments rather than just a single cell phone import levy.

According to the source, a complete ban should be in place until a new framework is established. Once a better alternative is available, banks will be willing to open mobile and internet banking channels for import payments. Another mechanism in the works and being proposed to the SBP concerns how transactions are settled.

According to Najeeb Aggrawala, CEO of 1Link, the entity that settles these transactions between banks and the FBR, the current measure is in the best interests of people who have been duped. An alternative to this approach could be to increase the settlement time for such payments to a day.

Settlement between banks and government entities such as the FBR occurs on the same day that a transaction is completed. If a bank’s settlement to the FBR is moved to T+1 settlement, which is the next day’s settlement, the customer has more time to complain that a transaction on his or her account was fraudulent, and the settlement is halted.

The FBR would not receive any money from the import tax, and any money deducted would be returned to the customer. This would help to alleviate the situation in which some of these scams are discovered but the entire service is not suspended.