The State Bank of Pakistan will no longer issue the Rs 40,000 prize bonds in the country from February 15. This move is aimed to plug the loophole that has long been used in the market as an alternate to bank transactions. The traders and businessmen use the Rs40, 000 prize bonds as alternate to cash. This use increased after the government imposed tax on bank transactions of non-filers. The government wants to discourage the use of this prize bond to stash black money.
The federal government has finally decided to abandon the Rs40, 000 denomination national prize bonds. These prize bonds have been used to white the black money and to avoid taxes on formal transactions.
The State Bank will not issue the new prize bonds but earlier investments made in this prize bond will remain valid. The central bank issued the instructions after the federal government directed the Central Directorate of National Savings (CDNS) to stop printing of Rs40, 000 bonds.
The Rs40, 000bonds is the highest denomination prize bond, out of total eight denominations, ranging from Rs100 to Rs40, 000. There was Rs75-million first prize on the Rs40, 000 denomination bonds.
The move will also address concerns of the global watchdogs, who remained suspicious about the parking of black money through threes bonds. Pakistan is currently on the negative list of the Financial Action Task Force (FATF).
As of November 2018, there was an investment of Rs910 billion in all types of prize bonds. An amount of Rs249.5 billion or 27.5% of the total investments alone was in the Rs40, 000 denominations. The investment in Rs40, 000 prize bonds has almost doubled to Rs250 billion in the past four years.
The previous PML-N government set up the Tax Reforms Commission (TRC) to reform the tax system had proposed that a new strategy be adopted on borrowings through prize bonds. The TRC findings showed that the high denomination unregistered bonds were the main source of “corruption and tax evasion”.
The TRC had proposed that people should be given six months’ time to deposit their instruments and claim back their investments. But due to the scarcity of revenues, the government has decided to stop only fresh bonds.
In March 2017, the then PML-N government had launched Pakistan’s first-ever registered prize bond of Rs40,000 denomination, aimed at tapping a cheap source of budget financing and addressing concerns about whitening money through old traditional prize bonds.
Prize bonds offer relatively low interest rates compared with other borrowing instruments, thus, providing a cheap source of borrowings to the government that is facing the challenge of bridging the ever-widening budget deficit.
The government would not discontinue prize bond draws that are already scheduled and payments of prize money against winning bonds will also continue.
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