State Bank to discontinue issuance of Rs40,000 bonds from Feb 15
Move aimed at plugging loophole that has long been used to legalise black money
Federal government officials said that the CDNS was adopting a gradual approach to phase out bearer bonds. PHOTO: FILE
ISLAMABAD:
The federal government has discontinued Rs40,000 denomination national prize bonds, with effect from Friday, plugging in a loophole that has long been used to whiten black money.
The issuance of fresh bonds will be discontinued from all State Bank of Pakistan (SBP) offices with effect from February 15, according to an internal notification of the SBP. The issuance of only new bonds has been stopped, which will not affect the earlier investments.
The central bank issued the instructions after the federal government directed the Central Directorate of National Savings (CDNS) to stop printing of Rs40,000 bonds. The Rs40,000 bond is the highest denomination prize bond, out of total eight denominations, ranging from Rs100 to Rs40,000. There was Rs75-million first prize on the Rs40,000 denomination bonds.
Pakistanis having offshore accounts can invest in diaspora bonds
The move will also address concerns of the global watchdogs, who remained suspicious about the parking of black money through threes bonds. Pakistan is currently on the negative list of the Financial Action Task Force (FATF).
As of November 2018, there was an investment of Rs910 billion in all types of prize bonds. An amount of Rs249.5 billion or 27.5% of the total investments alone was in the Rs40,000 denomination. The Rs15,000 denomination bonds also attracted Rs168 billion investments from the public.
However, these prize bonds have also been used to whiten the black money and have remained the key source of corruption and tax evasion in the country.
The Tax Reforms Commission that the last Pakistan Muslim League-Nawaz (PML-N) government set up to reform the tax system had proposed that a new strategy be adopted on borrowings through prize bonds. The TRC findings showed that the high denomination unregistered bonds were the main source of "corruption and tax evasion".
The practice involved purchase of the prize bonds, in addition to possession of the script wherein people tend to get the money whitened, according to TRC findings. The investment in Rs40,000 prize bonds has almost doubled to Rs250 billion in the past four years.
Exporters reject govt's bond float plan for tax refunds
The TRC had proposed that people should be given six months' time to deposit their instruments and claim back their investments. But due to the scarcity of revenues, the government has decided to stop only fresh bonds.
In March 2017, the then government had launched Pakistan's first-ever registered prize bond of Rs40,000 denomination, aimed at tapping a cheap source of budget financing and addressing concerns about whitening money through old traditional prize bonds.
These bonds attract higher prize of Rs80 million and also get profit on the bond. The printed receipts were given to the buyer of registered bond and there was no limit and period of the investment. After the launch of Rs40,000 registered bonds, people invested over Rs6 billion.
The decision to discontinue Rs40,000 bearer would not affect the registered bonds of the same denomination, according to an official of the CDNS.
There are total Rs3.6 trillion worth of investments by the public in all types of accounts, certificates and bonds being managed by the CDNS.
The central bank's notification stated that issuance of fresh prize bonds through cheques will also be discontinued from this Friday. But any pending requests with proceeds realisation date after February 15 will be entertained through re-issuable balance only, according to the central bank. In case of non-availability of re-issuable balance, the applicant will have to opt for any other denomination bonds.
Prize bonds offer relatively low interest rates compared with other borrowing instruments, thus, providing a cheap source of borrowings to the government that is facing the challenge of bridging the ever-widening budget deficit.
The government would not discontinue prize bond draws that are already scheduled and payments of prize money against winning bonds will also continue.
The federal government officials said that the CDNS was adopting a gradual approach to phase out bearer bonds. They said that the Rs25,000-denomination bearer bond can be discontinued after launching the registered bonds. People have invested Rs157 billion in the Rs25,000 denomination bonds.
Published in The Express Tribune, February 14th, 2019.
The federal government has discontinued Rs40,000 denomination national prize bonds, with effect from Friday, plugging in a loophole that has long been used to whiten black money.
The issuance of fresh bonds will be discontinued from all State Bank of Pakistan (SBP) offices with effect from February 15, according to an internal notification of the SBP. The issuance of only new bonds has been stopped, which will not affect the earlier investments.
The central bank issued the instructions after the federal government directed the Central Directorate of National Savings (CDNS) to stop printing of Rs40,000 bonds. The Rs40,000 bond is the highest denomination prize bond, out of total eight denominations, ranging from Rs100 to Rs40,000. There was Rs75-million first prize on the Rs40,000 denomination bonds.
Pakistanis having offshore accounts can invest in diaspora bonds
The move will also address concerns of the global watchdogs, who remained suspicious about the parking of black money through threes bonds. Pakistan is currently on the negative list of the Financial Action Task Force (FATF).
As of November 2018, there was an investment of Rs910 billion in all types of prize bonds. An amount of Rs249.5 billion or 27.5% of the total investments alone was in the Rs40,000 denomination. The Rs15,000 denomination bonds also attracted Rs168 billion investments from the public.
However, these prize bonds have also been used to whiten the black money and have remained the key source of corruption and tax evasion in the country.
The Tax Reforms Commission that the last Pakistan Muslim League-Nawaz (PML-N) government set up to reform the tax system had proposed that a new strategy be adopted on borrowings through prize bonds. The TRC findings showed that the high denomination unregistered bonds were the main source of "corruption and tax evasion".
The practice involved purchase of the prize bonds, in addition to possession of the script wherein people tend to get the money whitened, according to TRC findings. The investment in Rs40,000 prize bonds has almost doubled to Rs250 billion in the past four years.
Exporters reject govt's bond float plan for tax refunds
The TRC had proposed that people should be given six months' time to deposit their instruments and claim back their investments. But due to the scarcity of revenues, the government has decided to stop only fresh bonds.
In March 2017, the then government had launched Pakistan's first-ever registered prize bond of Rs40,000 denomination, aimed at tapping a cheap source of budget financing and addressing concerns about whitening money through old traditional prize bonds.
These bonds attract higher prize of Rs80 million and also get profit on the bond. The printed receipts were given to the buyer of registered bond and there was no limit and period of the investment. After the launch of Rs40,000 registered bonds, people invested over Rs6 billion.
The decision to discontinue Rs40,000 bearer would not affect the registered bonds of the same denomination, according to an official of the CDNS.
There are total Rs3.6 trillion worth of investments by the public in all types of accounts, certificates and bonds being managed by the CDNS.
The central bank's notification stated that issuance of fresh prize bonds through cheques will also be discontinued from this Friday. But any pending requests with proceeds realisation date after February 15 will be entertained through re-issuable balance only, according to the central bank. In case of non-availability of re-issuable balance, the applicant will have to opt for any other denomination bonds.
Prize bonds offer relatively low interest rates compared with other borrowing instruments, thus, providing a cheap source of borrowings to the government that is facing the challenge of bridging the ever-widening budget deficit.
The government would not discontinue prize bond draws that are already scheduled and payments of prize money against winning bonds will also continue.
The federal government officials said that the CDNS was adopting a gradual approach to phase out bearer bonds. They said that the Rs25,000-denomination bearer bond can be discontinued after launching the registered bonds. People have invested Rs157 billion in the Rs25,000 denomination bonds.
Published in The Express Tribune, February 14th, 2019.