ISLAMABAD: A National Assembly panel has raised questions over the transparency of over $3 billion loans under the concessionary Temporary Economic Refinance Facility (TERF) to some businesses during the Covid-19 pandemic and expressed concern over the central bank’s weak oversight of how the cheaper financing was utilised.
Meanwhile, Finance Minister Ishaq Dar told the Standing Committee on Finance and Revenue that there was no more room for any sort of tax amnesty because of the ongoing standby arrangement with the International Monetary Fund (IMF).
Mr Dar, who attended the NA committee for the first time since he assumed office last year, also directed the Federal Board of Revenue (FBR) to address reservations of the real estate sector when applying a new tax on deemed rental on more than one immovable asset of taxpayers.
The panel’s chairman, Qaiser Ahmed Shaikh, questioned the disbursement of over $3bn loans to big businesses during the coronavirus pandemic and wondered why such subsidised schemes were made available to the rich only and not to small and medium enterprises.
He said the committee would like to know how many factories had been set up and how much industrial production increased following the subsidised loan scheme.
The State Bank of Pakistan (SBP) governor, Jameel Ahmad, reported that out of the total 629 projects for which the loans were extended, 469 were fully operational, 89 partially operational, and the remaining 62 were expected to be operational by June 2025.
He said the TERF initiative would create around 194,300 jobs and generate Rs11bn in revenue in the upcoming years through export earnings and import substitutions.
In an urgent call for transparency and accountability, the committee members also sought a comprehensive delineation from the SBP about the approval procedures and norms associated with the concessionary loan schemes in question.
The committee’s curiosity was piqued over potential abnormalities that could see loans being redirected towards real estate investments rather than their prescribed purpose of boosting exports by installing industrial machinery.
They also suspected the possibility of the loan funds being illegitimately transferred overseas or machinery being underutilised. They expressed concern over the SBP’s apparent lack of follow-up oversight regarding loan utilisation.
‘Banks, DFIs responsible’
In response, the central bank governor reiterated that the sanctioning of such concessionary refinancing was approved under the provisions of the SBP Act, 1956, just like other schemes, such as the Long-Term Financing Facility (LTFF) for export and non-export projects.
He clarified that the SBP played no part in selecting the borrowers or disbursing the funds and that the total credit risk was undertaken by banks or development finance institutions (DFIs), which he said had been directed to exercise due diligence in disbursing finances to borrowers.
Mr Ahmad said the financing under TERF was strictly for the procurement of new plants and machinery and was exclusively against letters of credit (LCs) or irrevocable letters of credit (ILCs).
He emphasised that the responsibility of ensuring that the funds were used for their intended purposes lay solely with the banks and DFIs. He also pointed out that neither the SBP nor the government were providing risk coverage.
Realtors’ grievances
The committee took notice of the challenges besieging the real estate sector, particularly due to the amendments to the Finance Act of 2023.
A delegation of the real estate sector told the committee that because of Section 7E of the income tax law amended in 2022 and being applied this year, the real estate sector had come to a standstill and no registry or transfer of property was taking place throughout the country.
They explained that the section required the imposition of 1pc tax on deemed rental on the value of properties and assets other than one for the personal use of a taxpayer.
The delegation demanded that this tax might be kept intact for non-filers but should be abolished for filers because they had already paid 35-36pc tax on their incomes and purchased new assets through savings. Therefore, an additional tax on deemed rental practically increased the applicable tax rate to 40-45pc.
Also, such taxpayers were facing double jeopardy because the new tax had virtually brought down their asset values by 30-40pc while they had to pay additional tax on income, which actually did not accrue at all.
The committee members sympathised with the delegation and agreed that the introduction of Section 7E had triggered stagnation in the sector.
The finance minister told the committee that while no tax amnesty could be offered to tax evaders and non-filers, the representatives of the real estate should sit with the FBR and see how a way could be found.
Published in Dawn, August 5th, 2023
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