Pakistani taxpayers to be burdened with Rs30bn PIA loan interest
Pakistan’s taxpayers are set to bear a significant
portion of the cost of Pakistan International Airlines’ (PIA) legacy debt, with
the government allocating around Rs30 billion this fiscal year alone to cover
interest payments on liabilities transferred to the airline’s holding company.
The payment is part of a broader Rs73 billion
privatisation contingency allocation included in the government’s budget to
meet unforeseen costs linked to privatisation and the winding down of
state-owned entities.
The Rs30 billion interest bill relates to approximately Rs268.5
billion in PIA commercial debt that was shifted to public debt following the
restructuring of the airline’s finances. The government is effectively
providing the funds as a loan to PIA Holding Company, which currently has no
independent revenue stream and is expected to rely on the sale of assets,
including hotels, to meet its obligations.
Banks to earn Rs573bn
The financial arrangement is expected to prove lucrative
for the banks that agreed to restructure PIA’s commercial debt.
Under an agreement approved by the PIA Holding Company
board in 2024, banks extended the repayment period for the Rs268 billion debt
to 10 years at an annual interest rate of 12%.
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forgoes Rs4.47 billion in surcharges and penalties on PIA tax liabilities
As a result, the total amount payable to lenders over
the decade is projected to reach approximately Rs573 billion, including more
than Rs300 billion in interest. The interest component alone will therefore
exceed the original principal amount owed to the banks.
The government’s current-year interest obligation also
highlights the financial burden inherited by the state. The roughly Rs30
billion payment is about three times the Rs10 billion in cash initially
received by the government from the sale of a 75% stake in PIA.
Of the Rs135 billion bid value associated with the
transaction, Rs10 billion was received in cash by the government, while the
remaining amount was to be reinvested in the airline by the successful bidder.
The remaining 25% stake is also expected to be sold to the same investors for
Rs45 billion in cash.
Officials said the Rs73 billion contingency provision is
not exclusively linked to PIA and could also be used to meet legacy liabilities
arising from other privatisation and restructuring transactions planned during
the current fiscal year.
Sales tax relief extended to airlines
Meanwhile, the government has decided to extend sales
tax exemptions to all locally operated airlines from fiscal year 2027-28,
seeking to address concerns over preferential treatment granted to PIA
following its privatisation.f
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aviation authority takes Rs50 billion tax dispute to court
Privatisation Commission Secretary Usman Bajwa told the
National Assembly Standing Committee on Privatisation that the decision was
aimed at creating a level playing field for the aviation industry.
The government had earlier granted PIA an 18% sales tax
exemption on the procurement and leasing of aircraft, effective from July. The
exemption was originally designed to remain in place for 15 years.
The decision had drawn criticism from lawmakers, who
questioned why competing airlines should face a tax burden while the newly
privatised PIA received preferential treatment.
Committee Chairman Syed Naveed Qamar suggested that the
financial value of the tax concession should be considered when assessing the
overall price paid for PIA.
According to officials, the government has already
discussed the extension of the tax exemption with the International Monetary
Fund (IMF).
Source:
Express Tribune