Govt agrees to cease high denomination prize bonds: TRC chairman

KARACHI:  The government has agreed to withdraw high denomination prize bonds to flush out vast undeclared wealth and rampant corruption, Masood Naqvi, chairman, Tax Reform Commission (TRC) said on Saturday.

“The government, in principle, has decided to withdraw the high denomination prize bonds to end corruption and tax evasion,” Naqvi told The News.

“It has sought opinions from the State Bank of Pakistan (SBP) and National Savings on freezing circulation of high denomination prize bonds.”

Naqvi said the finance minister had directed the central bank and National Savings to provide quantum of investment made in Rs25,000 and Rs40,000 prize bonds.

“The directives were issued some six or seven months back but so far the SBP and national saving had not provided any details on investments,” he said.

The problem of black economy in Pakistan is pernicious and transactions that take place outside formal channels amounts to around 20 percent of the country’s annual $250 billion gross domestic product.

Finance Minister Ishaq Dar, in 2014, constituted a high-powered commission to sort out problems in taxation system and give recommendations to end tax evasion.

The commission recommended withdrawl of high denomination prize bonds for prevention of tax evasion and incidences of corruption. It then said “issuance of
prize bond of Rs25,000 or Rs40,000 needs to be discontinued as these high denomination bearer instruments fuel corruption and tax evasion.”

It also recommended that prize bonds of such denominations should be allowed to be deposited in bank accounts and the government should impose withholding tax at the rate of 0.1 percent. Tax on the prize bonds should be made adjustable and the evidence of tax deduction will suffice the purpose of documentation.

The commission viewed that the prize bonds were being used as a means of whitening the illegal money.

“The person purchases the prize bonds and get hold of the script wherein they tend to get the money whitened up on account of wining of prize through prize bond,” it said.

Naqvi said the government had accepted all those recommendations but there are a number of issues at the implementation stage.

“We recommended the government that such prize bonds should not be exchanged in hard cash and there should be bank transfer to exchange bonds,” Naqvi said.

A committee on Federal Board of Revenue leakages, formed by National Accountability Bureau (NAB) in April 2016, also highlighted the issuance of bearer certificates and prize bonds saying that the large denomination is providing opportunity to tax evaders to park their black money under this mode of financial instruments and also providing avenue to whiten black money at a reduced tax rate.

It recommended: “Bearer certificates/prize bonds of Rs7,500 and above denomination should be issued by name.”

The government in many previous attempts tried to get tough on tax evaders and at the same time offered at least three amnesty programs to legalise black money.

All the schemes miserably failed to significantly widen the tax base as well as to
limit black money and still less than 1 percent of the country’s population pays taxes.

Analysts said the government is mulling steps to create ‘fear factor’ very similar
­ to measures recently taken by the Indian finance ministry.

Earlier this week Indian government abolished high-value bank notes of 500 and 1,000 rupee to crack down on corruption and counterfeit currency.