Obtaining Sales tax refunds has been made easy as the government decided to issue 3-year promissory notes to bear 10 percent annual profit.
In a significant move aimed at easing the liquidity crunch faced by businesses, the Pakistani government is set to issue promissory notes for the payment of sales tax refunds, offering an annual profit of 10 percent on these financial instruments, according to sources within the Federal Board of Revenue (FBR).
The decision, detailed in the Finance Supplementary (Second Amendment) Bill, 2019, proposes a fundamental shift in the mechanism for disbursing sales tax refunds. As per the sources, the payment of sales tax refunds will now be facilitated through promissory notes, providing an alternative to the traditional methods of payment, such as cheques or electronic advice to the State Bank of Pakistan.
However, this innovative approach will only apply to claimants who choose to receive their refunds in the form of promissory notes, thereby giving businesses the flexibility to opt for this method based on their financial preferences.
The Finance Supplementary (Second Amendment) Bill, 2019 introduces a crucial amendment to the Sales Tax Act, 1990, by incorporating Section 67A. This new section outlines the use of promissory notes for the payment of sales tax refunds and is defined in the Tenth Schedule of the Act.
Key features of the promissory notes include:
Maturity Period: The promissory notes will have a maturity period of three years from the date of issuance.
Denomination: Issued in multiples of one hundred thousand Rupees.
Annual Profit: The notes will carry an annual simple profit of ten percent.
Redemption: The notes will be redeemable after the three-year maturity period, with the option for the Board to redeem them before maturity.
Market Trading: The promissory notes can be freely traded in the country’s secondary markets.
Statutory Liquidity Reserve: The notes will be considered an approved security for calculating the statutory liquidity reserve.
Collateral: Banks can accept the promissory notes as collateral.
Zakat Deduction: No compulsory deduction of Zakat against the promissory notes; sahib-e-nisab may pay Zakat voluntarily according to Shariah.
Furthermore, the promissory notes will be transferable through endorsement and delivery, akin to a promissory note payable to order. The Note Office will issue these notes, which will be printed by the Pakistan Security Printing Corporation with specified security features.
Upon maturity, the holder of the note can present it at the Note Office for redemption. The profit, along with the face value, will be paid through a crossed cheque drawn on the State Bank of Pakistan. The cheque will be signed by the incharge of the Note Office and another signatory appointed by the Board.
In case of loss, theft, destruction, mutilation, or defacement of a note, the procedure for issuing a duplicate note will be in accordance with the Public Debt Rules, 1946.
This innovative step is expected to inject liquidity into the market, providing businesses with an alternative avenue to access funds and potentially stimulate economic activities. The government’s emphasis on flexibility and financial incentives aims to address the challenges faced by businesses and promote a more dynamic and responsive economic environment. The impact of these changes will unfold as businesses and financial institutions adapt to the new system outlined in the Finance Supplementary (Second Amendment) Bill, 2019.
