Govt plans to lower tax for expats

May promulgate presidential ordinance to give sweeping income tax concessions

ISLAMABAD:

The federal government may promulgate another presidential ordinance to give sweeping income tax concessions to local and overseas Pakistanis on their investment in Naya Pakistan Certificates and real estate sector through recently launched digital accounts.

The proposal is aimed at attracting dollars from expatriates as well as those resident Pakistanis who have offshore assets aimed at supplementing foreign exchange reserves, sources in the State Bank of Pakistan (SBP) told The Express Tribune.

The government has also decided to incorporate Islamic Naya Pakistan Certificates Company under the administrative control of the central bank.

The tax concessions may be introduced through a Presidential Ordinance that is likely to be promulgated this month, said the sources. Naya Pakistan Certificates (NPCs) are sovereign instruments denominated in US dollar and Pak rupee, issued by the government for overseas Pakistanis.

It will be the second ordinance after the construction sector tax amnesty scheme ordinance to be promulgated next week. Prime Minister Imran Khan this week announced six months extension for the construction sector tax amnesty scheme and the Presidential Ordinance will be issued after Senate session to give effect to the extension.

The government may reduce the income tax rates on profits earned by investing money in Naya Pakistan Certificates by non-resident Pakistanis, according to the sources. Currently, the government charges 10% income tax on profit earned by them. The income earned by the expatriates may be fully exempted from the tax, said the sources.

The Pakistan Tehreek-e-Insaf (PTI) government has launched Naya Pakistan Certificates through Roshan Digital Account (RDA). So far, around 65,000 accounts have been opened with over $250 million investment. The government has announced to pay from 5.5% on three-month certificates to 7% interest rate on investment in five years maturity certificates in US dollar terms.

On rupee-denominated certificates, the interest rates are in the range of 9.5% to 11%.

The sources said that for resident Pakistanis investing in these certificates through the digital accounts, the income tax rate may be reduced from 15% to 10%. Resident Pakistanis who have declared assets abroad with FBR can also invest in USD-denominated the certificates.

The resident Pakistanis are eligible to purchase the certificates with the condition they have declared foreign assets in their annual return of income.

According to another proposal, the government was considering exempting 1% income tax on purchase of property by overseas Pakistanis through the digital accounts. On sale of these immovable assets by Pakistani immigrants, the proposed rate could be 1% to 2%, from the existing 2% to 4%.

The government was also considering exempting the capital gains tax on profit made on sale of property being bought through digital accounts. The current CGT rate ranges from 2.5% to 15%.

According to another proposal, the gains made by non-filers by investing in stock exchange through digital accounts should also be charged at 15% rate, as against 30% current rate, said the central bank sources.

However, the investments by overseas Pakistanis in the real estate sector may drive their prices high, which will be counterproductive for Prime Minister Imran Khan’s vision to ensure affordable housing.

The SBP has sent a set of proposals to FBR which, contain a host of tax incentives to persons who make investments in these financial products, said a senior FBR official while speaking on condition of anonymity.

He said that the SBP proposals were presently under consideration by the FBR and would likely to take final shape soon.

The sources said that Pakistan has also taken the International Monetary Fund into confidence and a final meeting with the Fund would be held next week before issuing the Presidential Ordinance.

“Differentiated taxation in the case of debt instruments like Naya Pakistan Certificates is a routine policy,” said Finance Secretary Kamran Afzal, while commenting on the development.

It was the second gamble by the central bank after its first attempt to inflate foreign exchange reserves through hot foreign money. In the last fiscal year, the country attracted about $3.6 billion hot foreign money, which evaporated as the interest rates came down to 7%.

The Express Tribune had requested the central bank to give version over its move to reduce income tax rates for overseas Pakistanis. In response, SBP spokesman Abid Qamar said, “The overarching intention behind the Roshan Digital Accounts is to make banking and investment opportunities available in an easy manner to Non Resident Pakistanis (NRPs). Under the existing laws and regulations, NRPs already can invest in Naya Pakistan Certificates with a simple and full and final tax of 10% on the profit. With regard to any additional policies being considered to facilitate NRPs, SBP does not comment on matters under discussion.”

Published in The Express Tribune, January 3^rd, 2021.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.