The National Board of Revenue (NBR) has exempted businesses from a 20% tax on the interest of foreign loans until February 2024, excluding advance payments. This move is expected to reduce interest costs by 1.5%-2% for businesses. While industry stakeholders welcome the decision, concerns arise about a potential surge in foreign loan payments before the deadline to avoid taxes.
Global interest rates, now linked to the US Federal Reserve’s Secured Overnight Financing Rate (SOFR), have risen significantly, reaching 5.35% from a pandemic low of 0.25%. The initial 20% tax on foreign loan interest payments, aimed at curbing borrowing, led to a decline in short-term foreign loans and contributed to a reduction in the country’s forex reserves. As of October, short-term private sector foreign debt was $12.13 billion, down from $13.66 billion in June.
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