Green bonds, gender bonds: proposed tax incentives

ISLAMABAD: The Federal Board of Revenue (FBR) is expected to incorporate a budget proposal from the Securities and Exchange Commission of Pakistan (SECP) into the Finance Bill 2022 to provide tax incentives on the issuance of green bonds and gender obligations from the next financial year (2022-23).

In this regard, budget officials are seriously considering this budget proposal in the upcoming budget.

Another proposal under consideration is to provide a tax credit for issuing green bonds and gender bonds, sources said.

Sources explained that the SECP defined green bonds as “debt securities, including sukuk, issued by an issuer, including companies, government-owned or controlled entities, whether by public offering or by private placement, the proceeds of which are used exclusively to finance or refinance, in part or in full, new and/or existing eligible green projects.

All issuers eligible to issue debt securities, including Sukuk by way of public offering or private placement, are eligible to issue green bonds while ensuring compliance with the applicable regulatory framework.

External Finance Wing empowered to deal with sustainable finance

In addition, Gender Bonds would increase women‘s financial inclusion and encourage female entrepreneurship. This would allow companies and debt securities issuers to diversify their source of funding and provide an additional financial instrument to a particular category of investors.

As a step towards promoting gender equality, issuing gender bonds will improve women’s access to leadership positions and gender-friendly corporate policies.

The SECP informed the FBR that the government should provide tax incentives linked to the issuance of green bonds and gender bonds. Such tax incentives would attract both issuers and investors.

An increase in the issuance of green bonds/gender bonds would also contribute to the achievement of socio-economic development objectives, to the benefit of society as a whole.

The proposed section in the Income Tax Order 2001 reads as follows: The Second Schedule – Part IV Specific Provision Exemption Income, or classes of income, or persons or classes of persons, listed below, shall be exempt from the application of those provisions of this Ordinance, subject to the conditions and to the extent specified below:- (36E) The provisions of Section 151 shall not apply to profits on Debt Paid on Bonds Issued Under the Federal Government Duty Repayment Obligation Rules, 2019]. “36F) The provisions of Section 151 shall not apply to the profit/yield of Green/Gender/Sustainable Bonds or Sukuks issued in accordance with the SECP Guidelines for the Issuance of Green/Gender/Sustainable Bonds.”

In case the FBR grants a tax credit facility, it is proposed to insert the following new section in the ITO 2001: “65 H. Tax credit for the issuance of green/gender/ lasting bonds. — When a corporate taxpayer issues a green/gender/sustainable bond in accordance with guidelines issued by the SECP, a tax credit equal to five percent of the tax payable will be allowed until such bonds are redeemed, the proposed section in the Income Tax Order 2001 added.

Copyright Business Recorder, 2022

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