KARACHI: Investment in premium prize bonds has sharply increased by 29 percent after the government seized the issuance of unregistered instrument to stop expansion of the black economy.
The investment in premium prize bonds of Rs40,000 denomination increased to Rs5.96 billion by end of February 2019, as compared with Rs4.62 billion in the same month of the last year, according to data released by State Bank of Pakistan (SBP) this week.
In February this year, the central bank stopped the issuance of Rs40,000 denomination prize bonds from its offices. The SBP also advised the Central Directorate of National Savings (CDNS) to stop printing the unregistered Rs40,000 prize bonds.
A member of Tax Reform Committee (TRC), which was constituted by the former government in 2014, on Wednesday said that it was recommended by the TRC to stop the circulation of high denomination prize bonds. The member said the committee had presented its report in May 2015 and advised the then finance minister that the high denomination prize bonds were a major source in the expansion of the black economy.
The TRC had recommended to document high denomination prize bonds of Rs25,000 and Rs40,000, and to issue those against CNICs of individuals. The SBP stopped the issuance of fresh unregistered bonds from February 15, 2019. However, it would not affect the already issued prize bonds. The government intends to expand the documented prize bonds in other denomination as well on the recommendations of the TRC, the member said.
The TRC in its report pointed out: “Issuance of prize bond of Rs25,000 or Rs40,000 should be discontinued as these high denomination bearer instruments fuel corruption and tax evasion.” The TRC also recommended that prize bonds of these denominations should be allowed to be deposited in bank accounts with a tax withholding of 0.1 percent. “Tax so deducted on the prize bonds should be made adjustable and the evidence of tax deduction will suffice the purpose of documentation,” the report added.
The TRC said in case of all other prize bonds, the government should encourage purchase and redemption through bank accounts and any cash withdrawal should attract the tax applicable to cash withdrawal. The TRC member said that the committee had repeatedly asked the previous government to implement this measure, but no decision was taken in this regard.
“But now under the international obligation the government is taking such measures to stop money laundering and terror financing,” the member said. The SBP data showed that total investment into unregistered / undocumented prize bonds had increased to Rs939.12 billion by February 2019, as compared with Rs803.52 billion in the same month a year ago.
The investment in the unregistered Rs40,000 bonds was Rs259.2 billion by February 2019, as compared with Rs225 billion in the month a year ago. But it is worth mentioning that the investment in these bonds remained almost static from December 2018 to February 2019. The premium prize bond was launched in March 2017. The bond is issued against CNIC and there is monthly profit to be transferred directly to the account of the bond holder.