Under proposed SRO, exemption worth Rs 20 to 25 billion is likely to be given to bond holders
ISLAMABAD: Despite high claims of reducing number of Statutory Regulatory Orders (SROs), the Finance Ministry has girded its loins to issue another SRO regarding upcoming Sukuk bonds.
Under this proposed SRO, exemptions worth of Rs 20 to 25 billion are likely to be granted to the shareholders of the bond.
Sukuk is an Islamic financial certificate, similar to a bond in Western finance that complies with Sharia, Islamic religious law. Because the traditional Western interest paying bond structure is not permissible, the issuer of a Sukuk sells an investor group the certificate, who then rents it back to the issuer for a predetermined rental fee. The issuer also makes a contractual promise to buy back the bonds at a future date at par value.
A source in the Finance Ministry told Customs Today that the ministry had forcibly got the proposed draft of said SRO approved from the Federal Board of Revenue (FBR) and now it was pressing the Law Ministry to get it vetted.
The source said that as stated by proposed SRO, income of Sukuk bond holders would be exempted from both the income tax as well as capital value tax (CVT).
“Motorway between Lahore and Islamabad, M-2, will be held as mortgage which has an estimated capital worth of Rs 1000 billion whereas the value of Sukuk bonds would be lesser to this price” the source said adding.
“The government eyes to get a handful increase in foreign exchange reserves through investment these bonds resultantly for the short term foreign exchange reserves will increase and conditions agreed with the International Monetary Fund (IMF) will also be met to some extent but this practice will have horrible impacts on Pakistani economy in a long term perspective,” he added.
The source said that through this SRO, undocumented wealth would come back to country from abroad as investors would take their money abroad then bring back for these bonds.
“As per plan Pakistan International Sukuk Company has been established and National Highway Authority (NHA) will transfer M-2 to this company which will further transfer it to third party as mortgage against Sukuk Bond,” the source said, adding that both the companies would be state owned but income of Sukuk bond holders would be exempted from both the income tax as well as capital value tax which would inflict loss of Rs 20 to 25 billion to the national exchequer.
“Every Sukuk Bond holder will get profit ratio of 7 to 8 % which is unprecedented in economic market” the source added saying that volume of exemption of capital value tax would be around Rs 3 to 5 billion while income tax value would be several times more to CVT.
SRO culture has remained one of the biggest hurdles in ensuring national development by widening the tax net and SROs are the foremost source of corruption, discrimination, budget subversion and national disgrace and FBR has become a factory producing SROs (Statutory Regulatory Orders) to favour influential which undermines capability of the government to spend on welfare and development.
Interestingly, in January last year the Public Accounts Committee of the National Assembly was informed that as many as 4,500 Statutory Regulatory Orders have so far been issued by the Federal Board of Revenue to grant favours in matters of taxation to individuals and entities belonging to the elite class, or to some blue-eyed people of the government.
