Ex-post facto approval granted to foreign commercial loans

Federal cabinet has reportedly granted ex-post facto approval to foreign commercial loans amounting to $2.7655 billion borrowed by the Government of Pakistan (GoP) from November 26, 2013 to September 20, 2016, well-informed sources told Business Recorder. The cabinet, in its previous meeting, also granted exemption on interest payments on money borrowed under a loan agreement.
Under the Rules of Business, 1973, the Finance Division is responsible for arranging finances to meet current and development expenditure needs of the country. The sources said foreign commercial loans are offered with the condition that taxes applicable in Pakistan would not be borne by the lenders. The option available with GoP is then to either bear the cost of these taxes or to grant exemption from such taxes.
Since November 2013, Finance Division has signed the following loan agreements with foreign commercial banks. Syndicate facility led by Credit Suisse: $172.5 million on November 26, 2013; (ii) $200 million on March 3, 2014; (iii) $250 million on September 7, 2015; (iv) $325 million on December 10, 2015; and (iv) $408 million on March 29, 2016.
Syndicate facility led by Noor Bank: (i) 265 million on September 30, 2015; (ii) $75 million on December 31, 2015; and (iii) $200 million on September 29, 2016.
Syndicate facility led by Standard Chartered: (i) $100 million on June 29, 2015. Dubai Islamic Bank oil financing facility of $70 million on October 24, 2015 and $700 million from China Development Bank on September 20, 2016.
Rule 16(l)(d) of the Rules of Business, 1973 requires placing of loan agreements before the Cabinet for approval. Clause 75 of Part One of the Second Schedule to the Income Tax Ordinance, 2001 empowers the Federal Government to grant tax exemption on interest payments on money borrowed under a loan agreement. The Cabinet may grant ex-post facto approval under the said Rule to the foreign commercial loans mentioned in para 3 above and also grant tax exemption under the said Clause on interest payments accrued on these transactions. The Federal Board of Revenue had no objection to the proposal seeking approval of the Cabinet for granting tax exemption in respect of interest payments of these foreign commercial loans.