Govt discontinues Rs25,000 bonds

Gives six-month deadline to investors to encash or convert their savings

ISLAMABAD:

The federal government has discontinued bearer prize bonds of Rs25,000 denomination and has given a six-month deadline to investors to encash or convert their savings of Rs164 billion aimed at addressing concerns of the Financial Action Task Force (FATF).

“New National Prize Bonds of Rs25,000 denomination shall not be sold with immediate effect,” read a finance ministry notification of December 9. It added that those owning the banned prize bonds would have until May 31, 2021 to encash, redeem or get their bonds converted.

The finance ministry also approved the immediate issue of “premium prize bonds (registered) of Rs25,000 denomination”, in place of a bearer instrument. However, a similar registered Rs40,000 instrument issued earlier had not been very successful as people preferred not to disclose their identity.

In June last year, the government had discontinued the Rs40,000 prize bond - the highest denomination out of total eight denominations ranging from Rs100 to Rs40,000. At that time, there was roughly Rs235 billion investment in the Rs40,000 bonds. These savings have now come down to only Rs2.1 billion.

But as of October this year, there was only Rs20.5 billion investment in the registered Rs40,000 prize bonds, according to the Central Directorate of National Savings (CDNS).

The government move will help address concerns of the global watchdog that is suspicious about parking of black money through these bonds. Pakistan is currently on negative list of the FATF, which is going to review Islamabad’s progress on implementation of the action plan in February next year.

The Asia-Pacific Group on Money Laundering has also placed Pakistan under enhanced monitoring.

Pakistanis have invested over Rs739 billion in all types of prize bonds and 22% of the total investment is in the Rs25,000 denomination bonds - the second highest after Rs15,000 bonds that had Rs189 billion investment.

These prize bonds have been used to legalise black money and have remained the key source of corruption and tax evasion in the country.

The finance ministry said the Rs25,000 bearer bonds could be converted into premium prize bonds that were registered with the government. The bearer Rs25,000 bonds can be converted through 16 field offices of the SBP Banking Services Corporation and authorised branches of six commercial banks - National Bank of Pakistan, UBL, MCB, Allied Bank, Habib Bank and Bank Alfalah, according to the finance ministry.

Similarly, the bonds can be replaced with Special Saving Certificates (SSC) and Defence Saving Certificates (DSC) through the 16 field offices of the SBP Banking Services Corporation, authorised commercial banks and National Savings Centres.

The rate of return on DSC and SSC is relatively better. Currently, the annual rate of return on DSC is 8.68% whereas the annual (average) rate of return on SSC is 7.6%, said the finance ministry.

The government has also given encashment option to the bondholders. In case the bondholder desires to encash the bond, the encashment proceeds will be credited to the specified bank account of the holder.

The bonds will only be encashed by transferring proceeds to the bondholder’s bank account, while bondholders will have to submit a copy of their CNIC and fill a form to be provided by the SBP for encashment.

The finance ministry said no further prize bond draw of Rs25,000 would be held. However, all the prize money claims on the already held draws will be claimable within a period of six years from the date of respective draw, as per the National Prize Bonds Rules 1999.

But the issuance, encashment and prize bond draws in respect of all other denominations of bearer prize bonds will continue as per existing procedure, according to the National Prize Bonds Rules 1999. The registered prize bonds offer not only attractive prizes through quarterly draws but also pay a reasonable profit through biannual coupon payments. The ministry has approved a 1.79% tentative biannual profit rate for the Rs25,000 registered bonds.

However, the real attraction for people was the Rs30 million first prize and Rs10 million second prize in addition to placing their money in bearer certificates.

Published in The Express Tribune, December 11^th, 2020.

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