Govt firms up $600m loan from Chinese banks

MUSHTAQ GHUMMAN

ISLAMABAD: Ministry of Finance (MoF) has reportedly finalised arrangements for $ 600 million commercial loan from two Chinese banks to be utilised for balance of payments and budgetary support, well-informed sources told Business Recorder.

Under the Rules of Business, 1973, Finance Division is responsible for arranging finances to meet current and development expenditure needs of the country. One of the ways to meet the resource gap is by raising finances on commercial terms from international financial markets.

The sources said recently the terms and conditions of the two financing facilities of $ 300 million each (total $ 600 million) to be provided by Industrial Commercial Bank of China (ICBC) and Bank of China have been negotiated. The proceeds of the financing will be utilised for balance of payments and budgetary support.

The two loan agreements have been cleared by the Ministry of Law and Justice from legal point of view, the sources added.

Federal Board of Revenue (FBR) has granted necessary tax exemptions under the avoidance of double taxation agreement between Pakistan and China.

According to FBR, interest will accrue to Bank of China in Pakistan under the Second Protocol to Avoidance of Double Taxation Agreement (ADTA) between Pakistan and China.

The sources said similar treatment is being accorded to the Industrial and Commercial Bank of China (ICBC) under the Third Protocol under avoidance of double taxation agreement between Pakistan and China. However, the Third Protocol has not been enforced as yet and likely to be enforced shortly after its vetting from the Law Division. The Third Protocol will enter into force on the date of the receipt of the latter notification by the two countries.

FBR maintains that the matter concerning tax exemption of interest income arising in Pakistan for the ICBC and Bank of China has already been catered for in the protocols to the avoidance of double taxation agreement between the two countries.