The Federal Board of Revenue (FBR) has granted tax exemption on the issuance of the International Sukuk Certificates under the Government of Pakistan Trust Certificate Issuance Program (TCIP).
The FBR issued a couple of notifications on Friday to amend the Second Schedule (Exemption Schedule) of the Income Tax Ordinance, 2001.
The FBR has also allowed an income tax exemption in respect of any profit on debt and capital gains derived by any agency of foreign government or any non-resident person from International Sukuk Certificates, including tap issues, issued or to be issued from time to time by Pakistan Global Sukuk Programme Company Limited under TCIP.
The FBR has granted income tax exemption to the Pakistan Global Sukuk Programme Company Limited. The provisions of sections 147, 151, 152, 236A and 236K shall not apply to the Second Pakistan International Sukuk Company Limited, the Third Pakistan International Sukuk Company Limited, and the Pakistan Global Sukuk Programme Company Limited, as a payer.
The details of various provisions of the Income Tax Ordinance, 2001 revealed that Section 147 was related to the advance tax paid by the taxpayer; Section 151 covered deduction of tax from the gross amount of return on investment; Section 152 dealt with the payments to non-residents; Section 236A was related to the advance tax at the time of sale by auction; and, Section 236K dealt with the advance tax on purchase or transfer of immovable property.
The FBR notification says that the provisions of Sections 151, 153, 155 (deduction of tax on rent of the immovable property) and 236C (advance Tax on sale or transfer of the immovable property) shall not apply to the Second Pakistan International Sukuk Company Limited, the Third Pakistan International Sukuk Company Limited and the Pakistan Global Sukuk Programme Company Limited, as a recipient.
It further describes that the provisions of Sections 37, 236C, and 236K shall not apply to National Highway Authority in respect of transfer of immovable property to the Pakistan Global Sukuk Programme Company Limited and in respect of transfer of immovable property to National Highway Authority from the Second Pakistan International Sukuk Company Limited or the Pakistan Global Sukuk Programme Company Limited.
Sources said that the FBR exempted TCIP from taxes and duties, to be issued under the Sukuk MTN program to access the international capital market.
The federal cabinet, in its meeting held on July 16, 2019, approved the setting-up of Medium-Term Note (MTN) programs for Eurobonds and Sukuks. Under the Eurobond MTN program, Finance Division has raised $ 3.5 billion up till now, with a $2.5 billion transaction in April 2021 and a $1.0 billion transaction in July 2021. The funds raised have provided necessary fiscal space to the government and have strengthened the country’s foreign exchange reserves position.
According to sources, the Finance Division now intends to access the international capital markets through the issuance of international Sukuk under a Sukuk MTN program, known as TCIP. Pursuant to the federal cabinet decision of June 22, 2021, the inaugural issuance under TCIP was planned by utilizing the Islamabad-Chakwal section of M-2 Motorway as the underlying asset to structure the transaction.
The Finance Division argues that international Sukuk issuance necessitates the following steps:
In case, exemptions were not granted, the transactions were less appealing to international investors resulting in higher pricing for the offerings. All past international Sukuk issuances of the Government of Pakistan were granted similar exemptions.
Foregoing in view, the cabinet was requested on October 27, 2021 to give approval to the following proposals:
The cabinet approved tax exemptions under the provisions of the Income Tax Ordinance, 2001, and other approvals in respect of International Sukuk issuances under TCIP.