The federal cabinet headed by Shahid Khaqan Abbasi was apprised in one of its recent meetings that under the rules of business 1973, the Finance Division was responsible for arranging finance to meet current and development expenditure needs of the country.
One of the ways to meet the resource gap was by raising finance on commercial terms from the international financial market.
Foreign commercial loans were offered with the condition that taxes applicable in Pakistan would not be borne by lenders. The option available with GoP was then to either bear the cost of these taxes or to grant exemption from such taxes.
The cabinet was informed that recently Finance Division had signed the following loan agreements with commercial banks: (i) first amendment agreement of December 8, 2016 of $ 55 million with Dubai Islamic Bank (DIB); (ii) loan agreement of February 17,2017 of $ 40 million with ECO Trade and Development Bank; (iii) Master Murabaha agreement of March 30,2017 of $ 115 million with Noor Bank P.JSC; (iv) amendment and restatement agreement of May 15, 2017 of $ 130 million with Noor Bank PJSC; (v) facility agreement of May 18,2017 of $ 415 million with Credit Suisse ; (vi) amendment and restatement agreement of $ 235 million of June 20, 2017 with Credit Suisse; (vii) common term agreement of $ 700 million with Standard Chartered Bank; and (viii) Term Facility Agreement of $ 275 million with Citibank N.A signed on June 30, 2017.
The cabinet was also apprised that Rule 16(1)(d) of the Rules of Business 1973 required placing of loan agreements before the Cabinet for approval. Clause 75 of part 1 of the Second Schedule to the Income Tax Ordinance, 2001 empowered the federal government to grant tax exemption on interest payments on money borrowed under the loan agreement.
The sources further stated that the Finance Division had recommended to grant ex-post facto approval under Rule 16(1)(d) of the Rules of Business, 1973 to the foreign commercial loans and also grant tax exemption under clause 75 of part 1 of the Second Schedule to the Income Tax Ordinance , 2001 on interest payments accrued on these transactions.
Ministry of Law and Justice had cleared these loans from a legal point of view. Federal Board of Revenue (FBR) had no objection to the proposal for granting tax exemption in respect of interest payments on these foreign commercial loans.
Copyright Business Recorder, 2017