Investment in prize bonds more than doubles to Rs814bln in last five years

KARACHI: Investment in prize bonds more than doubled to Rs814 billion during the past five years of Pakistan Muslim League (Nawaz) government, the central bank's data showed, as tax-saving investors preferred the avenue alternative to banking deposits.

The State Bank of Pakistan’s (SBP) latest data showed that investment in prize bonds stood at Rs814 billion as of March compared with Rs388 billion in June 2013. Investment in prize bonds sharply rose to Rs518 billion in June 2015 after the government slapped taxes on all the banking transactions, especially on non-filers to increase documentation of the economy.

A senior financial analyst said investment in prize bonds sharply increased after the past government enhanced withholding tax scope to broaden tax base.

In June 2015, the withholding tax rate on cash withdrawal of Rs50,000/day by non-filers of tax returns increased to 0.6 percent, while it was kept unchanged at 0.3 percent for filers. The government brought down withholding tax to 0.4 percent from 0.6 percent on non-filers following strong protest by small business men, retailers and wholesalers.

The SBP’s statistical bulletin showed that investment in prize bonds were around Rs130 billion during the first two years (2013 to 2015) of the previous government, which appeared to be a normal trend.

“But since June 2015, parking of funds in bearer certificates increased sharply, which showed that dealers, traders, small business men and other retailers shifted their focus to trade in government securities and prize bonds,” an analyst said. Analysts said the act of the government to document the economy was a step in the right direction.

“It will take a long time; although it aroused interest in prize bonds, especially the big ticket prize bonds,” an analyst said. The central bank’s data showed that investment in prize bond of Rs40,000 increased to Rs229 billion from Rs99 billion during the last five years. Prize bond of Rs25,000 attracted Rs141 billion as compared to Rs40 billion. Prize bond with face value of Rs15,000 saw an increase in investment to Rs145 billion from Rs70 billion. Prize bond of Rs7,500 received inflows of Rs76 billion as compared to Rs48 billion and prize bond of Rs1,500 witnessed an increase in investment to Rs92 billion from Rs56 billion during the period under review.

Analysts said growth of investment in prize bonds was interplay of tightening measures of the government to increase documentation as well as rise in per capita income and economic growth.

An analyst said banking deposits would have surpassed Rs12 trillion if taxes were not introduced.

“Usually, middle class community buys prize bonds to get rich overnight, but now it has appeared to be safe haven for the people thanks to the policies of the previous government which introduced several measures to arrest ever-increasing black economy,” an analyst said.