Foreign Exchange Act to change the dynamics of the economy
The new Foreign Exchange Act (FEA) is expected to change the dynamics of the whole economy in the country, a senior Central Bank (CB) official said.
The new Act was introduced to further liberalise the capital inflows and simplify the processes associated with current account transactions and foreign currency/ rupee accounts,
The foreign exchange management function in Sri Lanka was exercised earlier on behalf of the Government by the CB, through the Exchange Control Department (ECD) under the previous Exchange Control Act (ECA), he disclosed.
The Controller of Exchange and the Minister of Finance had been given full powers under the 1953 Act.
The violation of the ECA was a criminal offence and those found guilty had to face jail sentences in addition to paying a fine.
But the new Act recognises ‘Authorised Dealers (Licensed commercial banks and licensed specialised banks), ‘Restricted Dealers’ and ‘Dealers for a Specific Purpose’ as being permitted to deal in foreign exchange.
The CB has the authority to permit a person as a restricted dealer who is not an authorised dealer, to deal in foreign exchange subject to certain terms and conditions.
It can also appoint a person, not being an authorised dealer or a restricted dealer, to deal in foreign exchange for specific purposes subject to terms and conditions.
Controls on foreign exchange have been removed under the new law; the CB official said adding that the CB will implement the law as the agent of the Government under the direction of the Minister who is in charge of the subject area.
The CB is empowered to facilitate, monitor and conduct investigations and take action pertaining to foreign exchange transactions and foreign assets.
If a person fails to comply with the directives of the banking regulator then it could obtain a Magistrate Court order to either appear before the authorised person of the CB or to produce the books or documents in question.
In the event, a person does not comply with the requests by the CB for documents and further information or cause any resistance to the investigation, its authorised person could make an application to the Magistrate Court and obtain a Court Order, to either appear before the authorised person or to produce the books or documents in question.
Any person failing to comply with such court order will be liable for a fine of Rs. 500,000. If it becomes a continuing offence, such person will be liable to an additional fine of Rs. 100,000 for each day the offence continues.
A Rs. 1 million penalty could be imposed on persons other than authorised dealers for violating the new Act.
The CB has the authority to suspend the license issued to the authorised dealer to deal in foreign exchange or impose a penalty. It has established a new department to implement the new foreign exchange law.
Subsequent to the suspension, the authorised dealer will be given an opportunity to be heard before an appeal board.
According to the provisions of the Act there will be an amnesty granted for inward remittances which were previously not declared and the Act can also prohibit any payment of money out of Sri Lanka except with the approval of the CB.
The new Act permits current transactions. However capital transactions are restricted and relaxation of such restrictions are provided by way of regulations under the new Act.
Special permission will be given for foreign exchange earners to deal in current and capital transactions while introducing an appeal process where an authorised dealer refuses to deal in foreign exchange for a current or a permitted capital transaction.
Any Sri Lankan citizen resident in Sri Lanka, who remits to Sri Lanka any foreign exchange which has not been declared to the Commissioner General of Inland Revenue or to the Head of the Department of Foreign Exchange before the appointed date, is granted an amnesty.
Any such person, who remits to Sri Lanka, such foreign exchange amounting to more than US$1 million before the appointed date is liable to pay only a 1 per cent Remittance Fee to the Inland Revenue Department. No other fee, tax, surcharge, levy or penalty will be imposed.
Therefore, up to $1 million, there will be absolutely no fee, tax, surcharge, levy or penalty.
There will be no Remittance Fee (of 1 per cent) on other fees, tax, surcharge, levy or penalty, if such funds amounting to over $1 million, are invested in development bonds issued by the Government.