ISLAMABAD - The Economic Coordination Committee (ECC) of the Cabinet on Wednesday has approved the proposal for simplification of tax regime for non-resident companies investing in the local debt market with a view ot increase foreign exchange inflows and reserves. The Ministry of Finance had submitted proposals in ECC for simplification of tax regime for non-resident companies investing in the local debt market with a view to deepening the country’s capital markets, reducing the cost of debt for the government. The new tax regime as approved by the ECC would apply to the non-resident companies having no permanent presence in Pakistan.
According to the details, the existing foreign exchange framework of the country allows non-residents to invest in debt securities and Government securities through Special Convertible Rupee Accounts (SCRAs) maintained with banks in Pakistan. SCRAs are funded through foreign exchange received from abroad and converted into PKR in Pakistan for investment. There is no restriction on repatriation of funds from SCRAs which gives comfort to non-resident investors for investing in the local debt market. The tax structure for non-residents investing in debt securities is, however, complex with different tax regimes with multiple rates, penal transaction charges for non-filers and complex tax filing processes being key regulatory and structural impediments to foreign investment in the local debt market. To simplify this tax regime and ease conditions for non-resident companies investing in the country’s debt market, the ECC has approved revisions to the existing tax laws governing non-resident companies having no permanent establishment in Pakistan.
The ECC has also approved separate proposals for simplification of tax regime for non-resident companies investing in the local debt market, revision of cess rate on tobacco for the year 2019-20 and payment of outstanding amount of Rs5.85 billion as gas subsidy to the fertilizer industry. The approvals were given at a meeting of ECC of the Cabinet which met at the Cabinet Block with Adviser to the Prime Minister on Finance & Revenue Dr. Abdul Hafeez Shaikh in the chair.
The ECC was also briefed on the wheat situation in the country and it was pointed out that while prices were stable in most parts of the country, there were certain areas and places such as Karachi where the wheat and flour prices had escalated. The ECC directed the Ministry of National Food Security and Research to sit down with all stakeholders and ensure that the situation does not get out of hands and supply of wheat and flour at regular prices is ensured.
The ECC also considered a proposal by the Ministry of Energy for application of quarterly adjustment notified on 1st July 2019 to the zero rated industrial consumers and for it to be charged over and above the notified tariff for zero rated industrial consumers at 7.5cents as well as a proposal to the effect that Financial Cost Surcharge, Neelum Jhelum Surcharge, taxes and positive fuel adjustments would not be part of billing to zero rated sector industrial consumers and would be part of subsidy claims to be picked by the Government of Pakistan. The Committee discussed the pros and cons of the proposal in view of its financial implications and asked the Finance Division to hold a meeting with the stakeholders, including the Power Division, Commerce Division and Industries & Production Division and resubmit the case to ECC with solid proposals.
The ECC also took up a proposal for extension and rehabilitation of gas network in the oil and gas producing districts of Khyber Pakhtunkhwa and referred the matter to the Development Working Party headed by the Secretary Petroleum for an appropriate decision.
