Templates by BIGtheme NET
Home » Finance » Govt may set up ‘new’ company to borrow Rs200b
Govt may set up ‘new’ company to borrow Rs200b

Govt may set up ‘new’ company to borrow Rs200b

ISLAMABAD: In a move meant to keep its sacred revenue untouched, the government may set up a ‘new’ company to borrow about Rs200 billion from banks and return taxpayers’ refunds it has got over the years.

The intention of creating the new company is to keep borrowings outside the budget, thereby reducing its deficit and protecting revenue.

Govt borrows $408m from Swiss financial group amid transparency concerns

The government Wednesday discussed creating a Special Purpose Vehicle (SPV) under the Federal Board of Revenue to raise debt outside the federal budget at an interest rate equivalent to Karachi Interbank Offered Rate (KIBOR) plus at least 1% to pay back refunds, said sources in the Ministry of Finance. Finance Minister Ishaq Dar on Wednesday chaired two back-to-back meetings to finalise the arrangement for creating the SPV.

Returning the due refunds by borrowing puts question marks over the government’s claims of achieving tax collection targets.

The one-year KIBOR is 6.33% and the government will pay at least 7.33% interest rate on these borrowings, said the sources. They said that the FBR would pay the interest from its revenue collection -a hit to the exchequer due to inefficiency of the economic managers.

IMF’S concern

The move is likely to face resistance from the International Monetary Fund (IMF) and therefore, the government will formally announce the new setup after the expiry of the IMF programme, ending on September 30, said the sources.

Pakistan seeks rollover of $494 million-loan

“The IMF’s position is that tax refunds should generally be administered through the regular budget process”, said Tokhir Mirzoev, the IMF’s Resident Representative while responding to The Express Tribune.

The Executive Board of the IMF is meeting in the last week of September to approve the remaining loan tranche of $102 million under its $6.2 billion Extended Fund Facility (EFF).

Over the last three years, the federal government has blocked taxpayers’ refunds to artificially inflate tax revenues in order to meet IMF targets. Although the exact amount of taxpayers refunds remains unclear, the Finance Minister had at one point put the figure at Rs221 billion.

Instead of deducting this amount from the tax collection pool, the government has decided to borrow from banks at higher interest rates, said the sources.

For the time being, the government may pay the tax refunds of the exporters out of the collection pool, said the sources.

FBR’s solution

Some members of the FBR wanted to pay the taxpayers in cash by taking the money out of tax collection. However, they wanted that the government should lower the annual tax collection target of Rs3.621 trillion by the same amount. Finance Minister Ishaq Dar did not agree.

It had earlier planned to float bonds to pay tax refunds but changed it course due to implications on the budget.

Spokesman of the FBR, Dr Mohammad Iqbal, said that various options were under consideration to pay back the refunds but no final decision has been taken yet.

Parking the debt to be obtained for returning tax refunds in the SPV is not a permanent solution, although it will allow the Finance Ministry to keep the huge amount outside the budget. Earlier, the government created a similar SPV in the Ministry of Water and Power and parked Rs335 billion circular debt in it, which it has not returned till the date.

The Finance Minister in his budget speech had announced that all the pending sales tax refunds till April 30, 2016 whose Refund Payment Orders (RPOs) had been approved, would be paid by August 31, 2016.

This will be the second time in the history of the country when the government will issue bonds or borrow funds as an alternative to refunds. Last time, the PML-N’s second government had issued the bonds to clear refunds.

Accepted most economical offer while borrowing from Credit Suisse, says finance ministry

It is alleged that the FBR has blocked over Rs250 billion in addition to taking over Rs230 billion in undue advances as part of efforts to achieve last fiscal year’s Rs3.104 trillion tax collection target.

“The delay in payment of refund claims is a political matter and it is being dealt with by the finance minister,” Karachi Chamber of Commerce and Industry’s (KCCI) GST and Refund Sub-committee Chairman Shoaib Ahmad Faridi had alleged in front of a committee.

The FTO had constituted a seven-member committee, headed by Supreme Court Advocate Dr Ikramul Haq, on a complaint of Pakistan Apparel Forum Chairman Javed Bilwani about delay in the issuance of tax refund cheques by FBR.

Courtesy : Express Tribune



Share On Facebook
Share On Twitter
Share On Google Plus
Share On Linkdin
Contact us
Please Like Facebook Fan Page
By Liking facebook Page you are Updated about Latest Videos & News