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Finance Ministry to issue fresh LoCs to banks investing in NIT units

By Sajid Chaudhry

ISLAMABAD: The Ministry of Finance has decided to issue fresh Letters of Comfort (LcC) valid up to December 31, 2008 to four banks having investment in National Investment Trust (NIT) units, official sources told Daily Times on Friday. The Finance Division had earlier issued LoCs to four banks viz. the National Bank of Pakistan (NBP), Bank of Punjab, Bank of Khyber and Faisal Bank Limited, which were supposed to expire on December 31, 2007. To keep their over-Rs 10 billion investments in NIT units intact, the MoF has decided to issue fresh LoCs with extended validity, the official added. The government had guaranteed a minimum repurchase price of NIT units at Rs 13.70 on September 9, 1996 because of a depression in the stock market. The guaranteed repurchase price of NIT unit was withdrawn on November 1, 1997, the official added. During the currency of the guarantee certain institutional investors had expressed their desire to encash their units at the guaranteed price of Rs 13.70 per unit. However, the government had informally persuaded these institutions withhold redemption, the official informed. Capital gains would become taxable with effect from January 1, 2008. Incase of banking companies, NIT units in the books of LoC holder banks are shown at Rs 13.70 per unit and the current redemption value of a unit is Rs 60 and the difference would become taxable at the rate of 10 percent from the new year, the official disclosed. The NIT units have remained invested for more than 10 years; the banks would suffer a major loss if they were taxed at the rate of 10 percent on capital gains. The MoF, therefore, has suggested that the FBR may exempt the LoC holders from capital gains, which would become taxable from January 1, 2008, the official informed. FBR and MoF are in a process to resolve the capital gains tax issue well before December 31, 2007 so that banks are saved from any possible financial damage. Earlier, the government had allowed the certain adjustment to their holdings to all the LoC holder institutions of NIT units before the privatisation of NIT. The government is in a process of resolving all the pending issues including the issue of LoC holders well before the privatisation of NIT.

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