Tax-Free High-Yield T-Bills: A Magnet for Foreign Inflow?

In recent sales of domestic debt, the Pakistani government has raised RS258 billion via fund bills, triggering speculation that the State Bank of Pakistan may raise the policy rate by 200 basis points from the current 17 percent in off-cycle reviews. The government has also freed profits for investment in domestic bonds.

On Friday, the finance minister announced that “for non-resident institutions, the tax would be free on profit. It had improved the borrowing appetite. Bankers and finance experts predict that high yields and tax-exempted profits could attract foreign investment to Pakistan. Although this can only happen once the country secures a $1 billion loan from the IMF.

Bank bills are certificates representing loans to the federal government that mature in three, six, or 12 months. In comparison, the long-term Pakistan investment bonds (PIBs) mature in three, five, 10, and 20 years. Because these certificates carry the government’s full support, they are viewed as the safest investment.

Experts are optimistic about the increase in interest rates, which they say is aim at attracting hot money. The move is expected to be even more attractive with the possibility of a capital gains tax exemption. However, the decline in foreign exchange reserves held by commercial banks. It indicates that dollar investors have converted their savings, probably due to higher rates and to profit on the dollar rally.

In 2020, Pakistan attracted more than $4 billion in investment in treasury bills and PIBs. Most of the investment dried up within a few months after the emergence of the Covid-19 pandemic. According to the notification, the government has changed the seventh schedule of the Income Tax ordinance 2001, exempting nonresident companies from a 10 percent withholding tax on capital gains arising from the disposal of debt instruments and government bonds through the central bank-run SCRA (special convertible rupee account) and RDA (Roshan Digital Account).

However, experts have pointed out that the country’s foreign credit rating has deteriorated significantly in the past year, and there is still a risk of the rupee depreciating further against the dollar.

Syeda Qandeel Zehra
Syeda Qandeel Zehra
Syeda Qandeel Zehra is a senior content writer with writing expertise in different niches. She is an MBA graduate by qualification and loves to write about diverse topics. Zehra has 3 years of writing experience and currently employed at as a content writer.


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