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The government has introduced 38 new amendments to the Finance Act 2016, with most of them relating to income tax measures. Of all, 21 amendments are related to income tax measures, 15 to sales tax and two to federal excise duty (FED). These amendments will come into effect from July 1. Through the Finance Act 2016, the formula was amended to allow benefit of tax credit of 100 per cent for establishing a new industry in case of reduced equity–investment ratio of 70pc. Similar amendments were made to allow the tax credit, for equity investments on expansion of machinery or a new project.

It was also proposed that in the event of discontinuation of business within five years of availing credit, the tax credit will be deemed to have been wrongly allowed. The government has barred commissioner of income tax from determining fair market value of immoveable property. Under the amendment, the State Bank of Pakistan (SBP) will approve a panel of ‘valuers’ to determine fair market value.

The disputed clause regarding foreign trusts in the definition of a company has also been withdrawn. The government has empowered commissioners to issue notices if a taxpayer has not filed returns for the past 10 years. Earlier, the notice for any tax prior to five years could not be sent. Yet another amendment allows commissioner to recover only 25pc of the tax demand created in case an appeal before commissioner appeal is pending. The excess tax collected or deducted on account of higher rate for non-filers will be adjustable to the return filed for the relevant tax year only.

An explanation was introduced in the Finance Bill 2016 to calculate the limit of Rs50,000 to be aggregate withdrawals from all the bank accounts in a single day for withholding tax. Through the Finance Act 2016, the explanation has been further refined that the limit of Rs50,000 will be calculated on the basis of aggregate transactions, instead of aggregate withdrawals, from all bank accounts in a single day. The amendment has the effect that limit of cash withdrawals will still be calculated on a single-account single-day basis.

The exemption limit of income from gratuity from an approved gratuity scheme was further extended to Rs300,000 from Rs200,000. The government has introduced a 2-percentage-point reduction in tax rate for Shariah-compliant companies — 30pc for tax year 2016, 29pc for tax year 2017 and 28pc for tax year 2018 and onwards. The reduced rate will be available if the company is Shariah-compliant as per criteria of the SBP, the Securities and Exchange Commission of Pakistan and the Federal Board of Revenue.

Source: Dawn: 38 amendments introduced to Finance Act

The Senate Standing Committee on Finance approved the Securities and Exchange Commission of Pakistan (Amendment) Bill 2016 and the Financial Institutions (Recovery of Finances) (Amendment) Bill 2016 on Tuesday, besides approving an amendment to the Credit Bureaus (Amendment) Ordinance 2016. These bills, already approved by the National Assembly, will now be forwarded to the Senate and, if approved, will need the presidential assent to become a law. The SECP Bill 2016 covers all the deficiencies and shortcomings in the existing law. The commission succeeded the Corporate Law Authority (CLA) in 1999 as a unified regulator of the capital markets, and for the superintendence and control of corporate entities.

However, its mandate has continued to be enhanced through various amendments, such as floatation, management and regulation of modarabas (1999), insurance sector (2000), non-banking financial companies sector (2002), commodity futures market (2003), real estate investment trust (2008), etc. The new law will meet the local and international requirements for the corporate sector regulator, including the requirements of the International Organisation of Securities Commissions.

Among the major deficiencies in the existing SECP Act 1997 there is limited financial/administrative independence. Besides, the SECP has ineffective enforcement powers to call for information, lack of process for prosecution of cases, recovery of penalty, delay in decision of court cases, ex-parte stays and inadequate investigation powers. The act also has no statutory provision to seek international cooperation and extend assistance to a foreign regulatory authority in investigation and inquiries. Independent audit oversight framework is also needed to ensure quality of audit of public interest companies.

Furthermore, the Financial Institutions Bill 2016 was promulgated in 2001, primarily to deal with the recovery process of the bank loans. The Financial Institutions (Recovery of Finances) Ordinance (FIRO) 2001 provided a comprehensive legal framework on foreclosure, especially Section 15 which empowered the financial institutions to sell the mortgaged property. However, the Supreme Court in December 2013 declared the section as “ultra vires” (beyond legal power and authority) to the Constitution. The State Bank of Pakistan (SBP) initiated the process of consultation among the relevant stakeholders to frame the amendments in the FIRO in the light of the SC judgment and requirement of the financial institutions.

The new bill is meant to facilitate recovery of bank loans. The pecuniary limit of High Court cases is proposed to be enhanced to Rs 100 m to reduce the burden of cases on superior courts. The loans availed from Pakistani banks in other countries would also fall under the ordinance. The willful default would be an offence under the ordinance. Furthermore, provisions to sell mortgaged property without intervention of court have been revised. The proposed amendments are aimed at promoting healthy credit culture in the country, reduce risks of default and create additional funds for lending to new segments of borrowers. These measures taken together would stabilise the financial system and contribute to sustainable economic growth in the country. The bill was cleared by the National Assembly on March 17.

The Credit Bureaus Act, 2015 was enacted on Aug 19 last year to provide a comprehensive legal and regulatory framework for incorporation and functioning of private credit bureaus in the country. Under the act, credit bureaus are responsible for collecting credit information relating to debtors of banks, financial institutions, non-banking financial institutions, non-financial companies and other lenders or authorities and maintain data of such information and for provision of such information on request for specified purposes to facilitate efficient distribution of credit. However, an amendment has been made in the bill to delete the Section 15(4) of the act: “Any credit information report issued by a credit bureau shall be verified by the SBP and no credit information report shall be valid unless verified by the SBP.”

Source: Dawn

The adverse impact of a ‘seller-favouring’ USD 16b deal with Qatar for import of liquefied natural gas (LNG) has started appearing, as the government has approved a new implementation agreement for three LNG-fired power plants, which violates the least cost generation policy. The implementation agreement has been prepared under compulsion of consistent LNG supply by Qatar. This will make it binding for the three public sector power plants to produce 3,600 megawatts of electricity around the clock, irrespective of being economically viable or not. The downside risk is that the cost of generation will double once crude oil prices start increasing in the international markets.

The Economic Coordination Committee (ECC) of the cabinet approved the implementation agreement on Tuesday for running the LNG-based power plants, two of them being set up by the federal government and the third by the Punjab government. These power plants will be located in Punjab at Bhikki, Balloki and Haveli Bahadur Shah. The ECC approved the draft implementation agreement for imported LNG-based power projects in the public sector, said the Ministry of Finance. The government has already amended the Private Power Infrastructure Board (PPIB) law to make it possible to administer these plants. The ECC also approved amendments to power purchase agreements of three independent power producers (IPPs) to bind them to make payments for LNG supply within 10 days – down from the current period of 55 days.

The implementation agreement of the three LNG power plants will bind the federal government to pick all the risks associated with supply of the imported gas.

According to the approved arrangement, these plants will have to be operated on “must-run basis owing to the peculiarity of the mechanism of importing LNG”, according to a summary of the Ministry of Water and Power. The must-run policy would violate the merit order that was aimed at ensuring that low-cost power generation plants are run first, said Shahid Sattar, former member energy of the Planning Commission.

Pakistan recently approved a 15-year (2016-2031) government-to-government deal with Qatar that requires Islamabad to buy the entire volume of LNG or pay the full price, if it does not lift the whole quantity.

The implementation agreement is also in contrast to such agreements signed with the IPPs. In this arrangement, the government is the producer and buyer of electricity. It has picked all financial obligations associated with LNG supplies.

This was very unusual and eventually the government would pass on the buck to the electricity consumers, officials said. According to the implementation agreement, in the absence of re-gasified LNG, these power plants will be run on high-speed diesel and the price differential on account of high cost of generation and payment for LNG supplies, which was not picked because of any reason, will be the responsibility of the federal government. The ECC also authorised the PPIB to make and approve any project-specific amendments to the implementation agreement required during negotiations. The PPIB board has also been authorised to make amendments, if required, to the agreements to comply with the National Electric Power Regulatory Authority’s tariff determinations. The ECC approved amendments to the agreement between the Central Power Purchasing Agency and three IPPs – Rousch, Fauji Kabirwala and Davis Energen – to bind them to make payments to LNG suppliers within 10 days. The arrangement is also aimed at ensuring that Qatar Gas is paid within 10 days of the delivery of gas.

Source: The Tribune: LG-based power plants: Government flouts least cost generation policy