PIA seeks income tax relief on B777-340ER purchase loan

[Abbas Ali]

PIA seeks income tax relief on $47.5 million Boeing purchase loan

SOHAIL SARFRAZ

ISLAMABAD (December 16 2006): The Pakistan International Airlines (PIA) has sought income tax exemption on a new commercial loan of $47.5 million, needed for acquisition of three Boeing 777-300ER aircraft and one General Electric Propulsor from Boeing Inc, USA.

The national flag carrier had already made other demands for tax exemptions under Income Tax Ordinance 2001 on loans obtained through financing arrangement by a non-resident bank for purchasing these aircraft. The new loan would be a part of overall financing arrangement for the acquisition of three aircraft and one propulsor.

Sources told Business Recorder on Friday that the first demand was placed before the CBR in October 2006, whereas now a new exemption has been sought on the commercial loan. The new loan would also be supported by the Sovereign Guarantee issued by the Ministry of Finance.

The PIA is acquiring aircraft from Boeing Inc, USA. This acquisition is being financed through guaranteed loan from Export-Import Bank of United States of America ie Eximbank loan facility availed through a lease transaction.

The terms of the financing arrangement show that it represents a 'Private Loan' obtained from non-resident persons. Eximbank loan lenders will make available loan facility up to 85 percent of the cost of aircraft and the propulsor. This facility, in aggregate, will amount to $465 million. Under clause 72 of Part I of Second Schedule of Income Tax Ordinance, 2001, CBR is empowered to approve loan arrangements for tax exemption.

According to the fresh PIA demand, in addition to the Exim Bank loan, PIA will also obtain commercial loan amounting to 13 percent of the cost of acquisition. This loan will enable PIA to pay initial rent of lease under the financing arrangement. ABN Amro bank, loan lender, will make available to PIA a commercial loan up to 13 percent of the net price of the first two aircraft. This facility in aggregate will amount to $47.5 million. PIA will use the proceeds of the loan to make initial rent payment between PIAC, Eximbank and White Crescent.

Sources said that CBR is examining the case whether to give tax exemption on new loan under clause 72(I)/75 of Part-I of the Second Schedule of the Ordinance 2001 or not.

The loan will be repayable in quarterly instalments starting two-and-a-half years after the relevant draw-down date until the maturity date, sources added.

Source: Business Recorder