FBR considers issuing bonds to retire borrowings

Has to pay back Rs50 billion to commercial banks.

ISLAMABAD: Instead of returning due refunds, the government is considering issuing bonds to retire Rs50-billion borrowings from commercial banks, which were made to inflate the revenue figures.

This indicates its unwillingness to take corrective measures and take to task the officials responsible for the borrowings. The Federal Board of Revenue (FBR) is proposing that the government should issue bonds to the commercial banks instead of adjusting their refunds against tax collection, said officials of the FBR and the Ministry of Finance.

If it decides to go ahead with the FBR proposal, this will be the second time in the history of the country when the government will issue bonds as an alternative to refunds.

Last time, the PML-N’s second government had issued the bonds to clear the refunds.

Clearing the refunds from the revenue collection of this fiscal year would further dent the already declining revenues, said a senior official of the board. The FBR is struggling to achieve this year’s original tax collection target of Rs2.810 trillion and the government has introduced three mini-budgets in as many months.

According to Dr Hafiz Pasha, who served in the second PML-N government, since the beginning of the current fiscal year the government has imposed Rs390 billion worth of new taxes, which is the highest amount for a fiscal year.

The International Monetary Fund (IMF) would oppose the issuance of bonds, as it would distort the revenue collection figure, said an official aware of the talks with the IMF.

The tax authorities had obtained over Rs50 billion from top four banks in advance income tax from 2011 onwards. Later on, they neither returned the money nor adjusted them against the banks’ liabilities. They have now started giving compensation to the banks.

Independent experts are also opposed to the move of issuing bonds as it would tantamount to manipulating the tax figures. The FBR is paying 15% interest to banks on refunds, which has turned the money into borrowings.

But Ashfaq Tola, a member of the government’s Tax Reforms Commission, argues that the government should seriously consider issuing bonds as this will almost halve the cost of servicing.

Financial accounts of National Bank of Pakistan (NBP), Allied Bank Limited (ABL), MCB Bank and Habib Bank Limited (HBL) showed that the FBR paid them over Rs12 billion “in compensation on delayed refunds”.

The disclosure of compensation in the banks’ balance sheets put a question mark over the final revenue collection figures for fiscal years 2011-12, 2012-13, 2013-14 and on the collection in the first half of this fiscal year.

Out of Rs12 billion, the maximum compensation of Rs8.7 billion was given to NBP from 2011 to June 2014. MCB received Rs1.12 billion in compensation in 2014 – the PML-N tenure. ABL received roughly Rs2 billion in 2013 till September 2014, again in the PML-N tenure. HBL received only Rs222 million from 2012 to 2013.

Published in The Express Tribune, February 19^th,  2015.

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