ISLAMABAD:
The International Monetary Fund (IMF) has given its consent for waiving 18% sales tax on the lease of aircraft for induction into Pakistan International Airlines (PIA) and for parking more liabilities in a holding company, removing the two major obstacles to PIA’s privatisation.
The development may help kick-start the privatisation process again for Pakistan’s fourth-largest loss-making entity. Deputy Prime Minister Ishaq Dar on Tuesday took a briefing on the PIA sell-off, where it emerged that the two biggest hurdles may soon be removed, sources said.
Government officials told The Express Tribune that the global lender had given its consent for amending the Sales Tax Act and waiving the 18% sales tax that the prospective investors of PIA would be required to pay for the induction of new or leased aircraft.
However, there was no independent verification of the development, as the IMF’s response was awaited till the filing of the story.
The government’s first serious attempt to privatise PIA failed a few weeks ago after a real estate developer offered just Rs10 billion for a 60% stake against the minimum sale price of Rs85.03 billion.
Earlier, the serious PIA bidders walked out after the government did not accept their demands to waive the sales tax and settle the remaining Rs45 billion worth of liabilities to turn the negative equity into positive.
After the IMF’s consent, the PIA privatisation process may soon be revived. The finance ministry and the Privatisation Commission held discussions with the IMF to convince it to allow the tax waiver and the inclusion of more liabilities in a holding company.
Earlier this year, the government divided the company into two entities and took off Rs623 billion worth of liabilities from the main PIA and parked it in a holding company.
Last month, Privatisation Secretary Usman Bajwa said that the PIA bidders wanted the government to write off Rs45 billion worth of more liabilities and also waive the 18% sales tax on new or leased aircraft.
About Rs26 billion worth of liabilities were related to the Federal Board of Revenue, Rs10 billion was bridge financing from the Civil Aviation Authority and Rs9 billion comprised other liabilities.
The Privatisation Commission had briefed the IMF that because of the two conditions, the privatisation failed and it requested the IMF to allow it to exempt the sales tax and write off liabilities of Rs45 billion.
The IMF was briefed that 18% sales tax was not applicable to any other country, thus, the PIA investors would be in a disadvantageous position.
The aviation ministry prepared a business plan, which required about $500 million investment in the airline and the addition of new aircraft.
Ishaq Dar on Tuesday took a briefing from the Privatisation Commission on the PIA transaction, sources said. He was informed about the latest status. Due to a sudden meeting with the deputy PM, the Privatisation Commission’s scheduled board meeting was postponed.
In June, the government amended the Income Tax Ordinance to allow PIA to claim its tax losses in credit for 10 years against the regular provision for six years. Sources said that the 18% sales tax might be waived only for those planes that would be acquired for international routes to make sure that local airlines were not put at a disadvantage.
Privatisation Minister Abdul Aleem Khan said last month that the lack of cooperation from the Ministry of Finance was the reason behind the failed attempt to sell PIA, which did not accept the bidders’ demands.
He also blamed the caretaker government for finalising a faulty transaction structure, where it left behind a Rs45 billion negative equity on the PIA balance sheet despite taking off liabilities of Rs623 billion.
However, the finance ministry’s hands were tied because of the IMF programme. Also, the government could not change the terms of the Expression of Interest in the middle of the transaction.
Aleem Khan also publicly showed his displeasure over the working of Ernst & Young (E&Y), the financial advisers, hired at a cost of Rs2 billion. It is not clear whether the government will retain E&Y or will hire new advisers.
Aleem Khan said that even Gulf countries would not buy the dirt of PIA as its balance sheet had to be cleaned before selling to a foreign country or a private party.
The Ministry of Finance has finalised a transaction structure to sell PIA-owned Precision Engineering Complex (PEC) to Pakistan Air Force (PAF) at Rs6.5 billion, despite its negative equity of Rs1.7 billion.
PEC has already been separated from the core PIA. It is among the non-core assets parked in the PIA holding company.
PAF will pay Rs2.5 billion in cash for PEC within five years and will assume Rs3 billion in pension and provident fund liabilities for the already retired 259 employees of PEC for the next 10 years.
Prime Minister Shehbaz Sharif also took a briefing on Tuesday on scrapping the old power plants owned by the government. The PM was informed that around 500 employees of the power plants would be absorbed in the power distribution companies
