FBR formally announces tax waiver on bonds

Issues notifications about granting income tax exemption to global investors of Sukuk, Eurobonds

ISLAMABAD:

The federal government has decided to give income tax exemption to all foreign governments, foreign investors, companies, firms, associations of persons and non-residents, who invest in the International Sukuk and the Eurobonds, issued by Pakistan.

In this regard, the Federal Board of Revenue (FBR) formally issued two notifications on Monday.

According to the first notification, all foreign governments, foreign investors, companies, firms, associations of persons and non-residents who invest in the international Sukuk under the Medium Term Note (MTN) Programme will be exempted from the income tax on their profits.

The second notification announced income tax exemption for the same groups and entities on their profits from the Eurobonds. According to sources in the FBR, the taxman issued the notifications after approval of the federal cabinet.

The FBR deducts 30% income tax on the profit from the International Sukuk and the Eurobond if the investor is non-filer. The income tax imposed on the filers is 15%. The FBR also deducts 1% advance tax.

According to a new report, the federal cabinet on January 20 waived one-dozen types of income taxes to raise around $2 billion in debt through Pakistan’s first Chinese currency-denominated bonds and Eurobonds in a bid to make borrowing relatively less expensive.

The cabinet exempted investors from income tax after the Ministry of Finance told it that without exemptions, the sovereign bonds would be “less appealing to international investors”.

The federal cabinet waived taxes on profit on debt of up to 15% for filers and 30% for non-filers, minimum 1% income tax, advance tax, dividend tax, taxes on payments to non-residents, taxes on payment of contract fee to financial advisers, taxes collected by the Pakistan Stock Exchange and National Clearing Company of Pakistan, and taxes on the auction and purchase of immovable property.

The finance ministry had informed the federal cabinet that it was in the process of floating three types of sovereign instruments – Eurobonds, Sukuk (Islamic bonds) and Panda bonds – to acquire debt.

The ministry is targeting to raise $2 billion from global markets, including around $250 to $300 million from Chinese capital markets through Panda bonds, said the sources. It will be the first-ever capital market transaction in China.