NA committee fears majority of TERF loans parked in real estate

ISLAMABAD: The Chairman National Assembly Standing Committee on Finance and Revenue Qaiser Ahmed Sheikh stated that he fears that the $3 billion loans obtained by 628 businessmen under Temporary Economic Refinance Facility (TERF), might have been parked in the real estate sector.

He stated this while chairing a meeting of the National Assembly Standing Committee on Finance held at the Parliament House on Wednesday.

Chairman of the committee MNA Qaiser Ahmed Sheikh expressed a serious concern that the loans might be invested in the real estate sector. He further stated that this needs to be probed by the State Bank of Pakistan (SBP).

He said that the National Assembly needs the precise details of the businessmen who obtained these loans. If a loan has been given to companies, the names of these companies will be provided.

It has been alleged that machinery was imported for industrial use with this money but was subsequently sold in the local market.

Sheikh further alleged that the serious violations have been committed while giving these loans to the businessmen. “We will not refer the matter to the National Accountability Bureau (NAB) or Federal Investigation Agency (FIA), but appraisal of the loans must be done by the SBP.

MNA Ali Pervez questioned whether the amount has been remitted abroad? If any kind of over-invoicing has been committed, what kind of due diligence has been done by the central bank to check the misuse of these loans?

MNA Ch Barjees Tahir stated that despite repeated requests, the government is not ready to provide a list of the individuals/businessmen who obtained $3 billion loans. In protest, he walked out of the committee along with other members including MNAs Chaudhary Khalid Javed, Khalid Hussian Magsi.

The SBP officials informed the committee that the Temporary Economic Refinance Facility (TERF) along with its Shariah compliant version was introduced by SBP in March 2020 to support economic growth in the backdrop of challenges being faced by the industry during COVID-19 pandemic. Under the facility, concessionary refinance was available for purchase of plant and machinery.

SBP officials further stated that the TERF was a rupee based scheme and no interest free loans were provided under this facility. During most of the period, financing under TERF was provided at an end user rate 2% below the policy rate. Initially, the maximum end-user rate was 7% when the scheme was launched on March 17, 2020.

The SBP reduced the end user mark-up rates on TERF from 7% to 5% on July 08, 2020 when benchmark SBP policy rate was reduced to 7%.

Further, financing under TERF was provided by banks/DFIs as per tests and conditions of the scheme and in line with their credit policies. The SBP did not have any role in selection of borrowers and disbursement. Further, there was no risk sharing from GoP and SBP. The entire credit risk was borne by banks/DFIs. The scheme has already expired on March 31, 2021.

Under TERF, a financing amount of Rs 435 billion was approved by banks/DFIs for 626 borrowers, added the SBP officials.

Apart from TERF, the committee looked at problems pertaining to registrations and transfers of real estate. The representatives of the real estate sector from all major cities informed the National Assembly Standing Committee on Finance and Revenue that over 95 % of the registrations and transfers of immovable properties have stopped after implementation of section 7E (tax on deemed rental income basis) from July 1, 2023.

The registries have decreased by up to 95 % along with the closure of transfers across the country. This surge in taxes has increased sufferings of the local investor as well as overseas, as the capital has started transferring abroad. Resultantly, the overseas investors are reluctant with their investments in Pakistan.

FORP stated that, “deemed rental income under section 7E is a thorn in the throat and it should be withdrawn. If not possible, then the filer should be exempted of it”.

The FORP proposed that if section 7E is not avoidable, then it should be only charged on plots. The filers should be permitted for the transfers after the undertaking of the affidavit and non-filers must be charged.

Through Finance Act, 2022, section 7E was introduced whereby, for tax year 2022 and onwards, every resident has been treated to have derived as income, an amount equal to 5 % of the fair market value of the capital asset situated in Pakistan subject to exclusions of the capital assets provided in the law.

The deemed income is chargeable for tax at the rate of 20 % (effective rate 1 % of fair market value of immovable property).

Finance Act 2023 has introduced a new sub-section (2A) in section 236C of the Ordinance which places a bar on the transferring authority for registering, recording and attesting the transfer of any immovable property unless the seller or transferor has discharged his tax liability under section 7E of the Ordinance and evidence to this effect has been furnished to the transferring authority in the prescribed mode, form and manner.