ISLAMABAD: Ministry of Finance (MoF) has sought tax exemption on interest/profit payment accrued on foreign commercial loans of $ 3.040 billion raised from international financial market since February 2020, sources close to Secretary Finance told Business Recorder.
Under the Rules of Business, 1973, Finance Division is responsible for arranging finances, including foreign exchange, to meet the current and development expenditure needs of the country and to maintain a sustainable balance of payment (BoP) position. Raising foreign exchange on commercial terms from the international financial market is one important avenue for this purpose.
Finance Division has executed the following financing facilities since February 2020: (i) extension agreement with ECO Trade & Development Bank for $ 40 million;(ii) Master Murabaha agreement with Ajman Bank for $ 110 million;(iii) facility agreement with Bank of China for $ 200 million;(iv) facility agreement with Bank of China for $ 300 million;(v) Term Facility Agreement with China Development Bank for $ 1 billion;(vi) Term Facility Agreement with Credit Suisse for $ 115 million ;(vii) Master Murabaha Agreement with Dubai Islamic Bank for $ 405 million ;(viii) Term Facility Agreement with Industrial & Commercial Bank of China for $ 500 million;(ix) Term Facility & Master Murabaha Agreement with Emirates NBD for $ 370 million.
Rule 16(1)(d) of the Rules of Business, 1973 requires placing of these loan agreements before the Cabinet for approval. Further, these foreign commercial loans are offered on the condition that taxes applicable in Pakistan will not be borne by the lenders. The option available with the Government is then to either bear the cost of these taxes or grant exemption. Clause 75 of Part I of the Second Schedule to the Income Tax Ordinance, 2001 empowers the Federal Government to grant exemption on profit payments on the money borrowed under loan agreement.
The financing agreements were executed after clearance from the Ministry of Law & Justice and the Office of Attorney General for Pakistan. The Federal Board of Revenue has no objection to the proposal for granting tax exemption in respect of interest/profit payments on these foreign financing facilities.
Ministry of Finance has sought ex-post facto approval under Rule 16(1)(d) of the Rules of Business, 1973 for foreign financing facilities and granting tax exemption under clause 75 of Part I of the Second Schedule to the Income Tax Ordinance, 2001 on interest/profit payments accrued on these financing facilities.
Copyright Business Recorder, 2021
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