Local prospective buyers of Pakistan International Airlines (PIA) have sought the same protections that foreign investors currently enjoy under a parliamentary act. Additionally, they are asking for complete tax exemptions on air travel, fuel, and aircraft leases, according to sources from the Privatization Commission, as reported by The Express Tribune.
These demands were raised by some of the shortlisted bidders during the ongoing PIA due diligence process. However, the refusal of these bidders to meet performance benchmarks is reportedly complicating the privatisation process.
The bidders’ requests contradict an agreement with the International Monetary Fund (IMF), which prohibits the government from offering special treatment to any group of investors, finance ministry officials confirmed. The government has shortlisted six local entities for the privatisation of PIA: Airblue, Arif Habib Corporation, Blue World City, Fly Jinnah, Pak Ethanol (Pvt) Consortium, and YB Holdings Consortium. Initially, the plan was to complete PIA’s privatisation by June-July 2024, but the deadline has since been extended to October 1, 2024.
Key Demands of Bidders
The shortlisted bidders have requested to be classified as investors under Section 2 of the Foreign Investment Promotion and Protection Act 2022. This section covers assets that investors own or control, and provides legal immunity from certain taxes while offering a special legal status to their investment. However, despite these requests, no foreign bidders have shown interest in acquiring PIA—only local bidders are involved.
Under the terms of the IMF’s $7 billion Extended Fund Facility, the government cannot grant any special treatment or tax exemptions to attract investors. Privatisation Commission Secretary Usman Bajwa has yet to comment on whether the government is considering granting the requested protections or exemptions under the Foreign Investment Promotion and Protection Act.
Tax Exemptions and Legal Amendments
In another key demand, bidders have asked for amendments to tax laws, particularly the removal of sales tax on aircraft purchases and leases. They argue that PIA’s fleet must be expanded for the airline to remain financially viable but refuse to commit to targets for adding a specific number of planes.
They have also called for the removal of all federal excise duty (FED) and sales tax on domestic and international air travel. Currently, international air travel is heavily taxed, with Rs56 billion in additional FED imposed in the current fiscal year.
Further, potential buyers have asked for a 10-year moratorium on new taxes for PIA and its associated businesses, along with a general tax exemption under the Foreign Investment Protection Act.
Liabilities and Tax Obligations
The government has already taken steps to ease the burden on potential buyers, carving out Rs623 billion in liabilities from PIA and placing them into a holding company. However, bidders have also refused to accept responsibility for Rs56 billion in outstanding tax payments owed to the Federal Board of Revenue (FBR), asking the government to cover these costs. At the same time, they are showing interest in pending tax claims worth Rs62 billion.
The bidders have further demanded that the government settle all tax liabilities, penalties, and claims before the takeover date, and provide immunity from any potential negative outcomes related to tax cases or liabilities dating back to before privatisation.
Sources also revealed that bidders have requested the removal of sales tax and FED on fuel to ensure that PIA remains competitive with foreign airlines.
Leave a Comment