What alternatives do you have now?- Samaa Digital

 

Last week, the government discontinued one of people’s most favorite prize bonds which was sold for Rs40,000 and rewarded the lucky winner with a jackpot. Why discontinue it? What about those who are already in possession of these bonds and what is the alternative for the rest? These questions are bothering many. This piece tries to answer them.

The Rs40,000 prize bond is the most expensive of the eight denominations the government offers — Rs100 being the cheapest. By issuing these bonds, the government aims to encourage a culture of savings among its citizens and, at the same time, mobile these savings to finance their own needs as opposed to borrowing from banks, which is expensive.

If you currently have this particular bond, you have nine months to avail one of three choices. You can cash it anytime, convert it into either a Special Savings Certificate or Defence Savings Certificate or your third option is to convert it into a Premium Prize Bond.

You have until March 30, 2020 to avail these three choices. The process is simple: visit either an HBL, UBL, NBP, MCB, ABL or Bank Alfalah branch or visit the banking service corporation office of any of the State Bank of Pakistan’s 16 field offices.

You will, however, need to check which branches of the above banks are dealing with this issue. There are two SBP offices in Karachi, including one in the main SBP building. You can also visit one of the 376 branches of the Directorate of National Savings.

If you go for the second choice, you can earn a fixed profit. For example, a Special Savings Certificate gives a profit of 12.47% or Rs4,988 per year. The profit rate for a Defence Savings Certificate is 11.57% per year.

Alternatively, if you go for choice number three, you need to know the following. Unlike the now dysfunctional Rs40,000 bond, the Premium Prize Bonds offer higher prize money and a bi-annual fixed profit (based on the government’s interest rate). There is one major difference: Premium Bonds have to be registered in the bearer’s name (more on that in the last paragraph).

To compare prize money between the two, see the table below:

Why was the bond discontinued?

Genuine investors were interested in buying the Rs40,000 bond because of the high prize money it offered, but it was also a favourite for those who wanted to wash their dirty money and dodge the taxman. These are the people who evade taxes.

So here is how it worked: they first bought the bonds from anyone willing to sell them and in doing so, got rid of cash (read: black money). If they were to deposit the same cash into their bank account, they would be required to explain the source of this income and likely land in trouble with the exchequer.

So then, they had prize bonds which can be taken to commercial banks, SBP field offices or branches of National Savings and cashed. This cash comes from a prize bond backed by the government thus it is clean and good to land in a bank. If asked to explain its source, one can say they got it from selling their prize bond. This is one reason why these bonds were being used as a currency. You can think of a Rs40,000 bond as a Rs40,000 note because it can be cashed anytime. Many people don’t want to go through the hassle of cashing their bonds through official channels so they sell it to anyone willing to pay cash – and the ones who want to clean their dirty money don’t mind paying a bit extra.

This is a much simpler version of what happens in the market. Usually, these bonds are traded multiple times (it changes too many hands) before they can be cashed. Since the bonds are not registered in the bearer’s name, it is difficult to trace them. This should explain why the government is offering you the Premium Bonds, which have to be registered in your name. So by discontinuing the regular Rs40,000 prize bonds, the government has further tightened the noose around tax evaders.

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