As one of the measures to raise foreign exchange reserves, the government has taken a big step to attract foreign investment through tax exemption. The non-resident banking companies have been given tax exemptions on the profit earned through investment in debt securities like treasury bills and Pakistan Investment Bonds.
The Notification by the Ministry of Finance and Revenue, issued on Wednesday, says, “Profit on debt and capital gains from debt and debt instruments approved by the federal government shall be exempt from tax chargeable…, derived by any non-resident banking company approved by the federal government.”
The government has amended the Seventh Schedule of the Income Tax Ordinance, 2001. The non-resident companies were subject to a 10 percent withholding tax on capital gains arising from the disposal of debt instruments government securities through the SBPÂ’s rum Special Convertible Rupee Account and Roshan Digital Account.
The PTI government had attracted foreign investment of more than $3.5 billion in the rupee-denominated debt securities, Treasury-Bills and Pakistan Investment Bonds for about two years. In 2020, the investors pulled out almost all the invested amount during Covid-19.
There was a high rate of return on T-bills and PIBs then at about 14.15 percent which caused the receipt of big foreign in the country.
Moreover, the rupee-dollar exchange was also stable. Ismail Iqbal Securities Head of Research, Fahad Rauf, believes, “The government may hardly attract a few hundred million dollars through the latest tax concession to foreign banking companies…amid poor circumstances. Pakistan’s foreign rating was much better in 2019-20 than today’s downgraded rating. We are managing the high risk of default these days, unlike the better investment environment in the past.”
He added that if foreign investors developed confidence in the economy, then they may invest in PakistanÂ’s foreign currency-denominated bonds like Eurobond and Sukuk in the global market instead of injecting funds into rupee-denominated Treasury-Bills and Pakistan Investment Bonds.