CCoP gives tax exemption to OGDC bonds

The Cabinet Committee on Privatisation (CCoP) has exempted Exchangeable Bonds (EBs) of Oil and Gas Development Company Limited (OGDCL) worth $500 million from taxes, which is a violation of its mandate. A team of top officials from the Ministry of Privatisation, OGDCL and members of Financial Advisory Consortium (FAC) are already in foreign countries for road shows to generate investors' appetite.
The government hopes that the road shows would allow GoP to sell OGDCL equity story and key economic strengths of Pakistan in an effective manner. According to the official documents exclusively available with Business Recorder, the meeting was informed that in view of CCoP decision of March 8, 2011, Privatisation Commission was actively pursuing the execution of OGDCL Exchangeable Bonds (EB) by June 30, 2011.
It was also intimated that:(a) as per precedent, international investors of GoP sovereign bonds, floated in the international market, were exempted from taxation on interest income derived from such bonds; b) as per market practice, international investors were also exempted from any tax emerging from capital gains on the trading of the bonds, where the bonds were listed internationally; and (c) international investors of OGDCL EB would also expect similar exemption from any tax on gains or income derived from settlement of the bond either in the form of shares or cash in lieu thereof.
The Privatisation Ministry proposed exemption from payment of income tax under the Income Tax Ordinance 2001 on the following incomes of the international investors of the EB: (i) Dividend income on share acquired after conversion of EB; and (ii) capital gain on disposal of share acquired in consequence of conversion of EB.
The Ministry of Privatisation further explained that normally granting tax exemptions was the domain of the Economic Co-ordination Committee (ECC) of the cabinet. However, given the time constraints and the urgent nature of the transaction, CCoP was requested to approve the proposed exemption and the chairman CCoP, in his capacity as Chairman ECC, was requested to direct Federal Board of Revenue (FBR) to urgently notify the proposed exemptions.
Subsequently, the matter would be submitted to the ECC for ratification, if required. It was, however, observed that the ECC and CCoP were two distinct committees of the cabinet and they could not encroach upon the domain of each other. As such the matter should be submitted to the Prime Minister, Syed Yousuf Raza Gilani. The CCoP, after detailed deliberations on the proposal for tax exemption on OGDCL EBs, agreed, in principle, and also directed the PC to submit a summary to the Prime Minister seeking his final approval.