Pakistan may set up new 'company' to borrow Rs 200 billion

Islamabad, Pakistan Updated: Aug 19, 2016, 06:12 AM(IST)

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

In what may be viewed as an attempt to keep its 'sacred revenue'  untouched, the Pakistan government is mulling over setting up a ‘new’ company to borrow about Rs200 billion from banks and return taxpayers’ refunds it has got over the years, the Express Tribune reported on Thursday. 

The report says that the government discussed on Wednesday about 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 per cent to pay back refunds. 

However, the report further says that 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. 

"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,"  the report says. 

According to sources, instead of deducting this amount from the tax collection pool, the government has decided to borrow from banks at higher interest rates.  "For the time being, the government may pay the tax refunds of the exporters out of the collection pool, said the sources,"  the report reads. 


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