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Rs40,000 prize bond discontinued: What alternatives do you have now?

June 25, 2019
 

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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4 Comments

  1. Avatar
    Hussain Shabbir   June 25, 2019 10:54 pm/ Reply

    Excellent thinking by the PTI govt. I was starting to think that PTI was vision-less, however the way they have handled the amnesty scheme and now the prize bonds issue demonstrates some smart thinking on the the part of the govt. the change in the finance ministry has certainly worked!

  2. Avatar
    Muhammad Yaseen   June 26, 2019 12:23 pm/ Reply

    The Bond is one thing and Rs.5000 note is biggest source if Government immediately change the note of Rs.5000 with new note and only Banks should except the old 5000 notes through bank accounts of individuals. All bonds may be changed with new bonds through bank account only.
    Further, asset declaration should be extended to politicians and public/civil servants. The objectives may be achieved through systems and not threats and speeches. It would be worthy to fix the target and once the target is met there should be flexibility. Let the trade and industry should not disturb. The filers must be exempt from audit for 5 years and those who file the return and declaration they may also be except from any audit for next 5 years. The media must help campaign through positive advertisement and tv talks by nationalist and law abiding citizens. Politicians must make the suitable law at all levels to provide equal treatment to all. FBR Chairman is thorough professional and let him do his job with the Team of FBR. Unnecessary criticism on FBR team may be avoided as they had been subject political pressures and policies and they were never allowed to work independently as organisation. They are also human being and part of our society. FBR Team will always achieve results but they need proper respect, authority and clear SMART Targets.

  3. Avatar
    Mazhar   June 27, 2019 8:59 pm/ Reply

    Very smart move by the FBR to catch dirty fishes.
    Mostly who keeps this bond of Rs. 40,000, in my opinion if someone has few bonds like 20-30 or 50, it does not means it is from black money, may be they have spare money for few months and expect chance for jack pot, otherwise there is no loss.

    SBP must introduce apps,that operated by all bank managers only to legalize up to 50 bonds per head. Authorized person update NIC and mobile number in SBP web site, so if that person again wants to legalized his bonds in different branch then it automatically alarm the SBP and then work of SBP will began to investigate and find the source. Even if in a FRC persons are having more than certain amount then it again pop up to FBR or SBP..

  4. Avatar
    SHAHID HUSSAIN S SAQIB   July 3, 2019 12:12 pm/ Reply

    VERY GOOD MOVE BUT TELL ME IF SOMEONE GOT TO COURT ON THE BASIS OF WORDINGS /PROMISE BY GOVERNOR SBP/ORESIDENT OF PAKISTA ‘ THE HOLDER OF THIS BOND IS ENTITLEDTO RECEIVE ON PRESENTATION,A SUM OF FORTY THOUSAND RUPEES FREE OF INTEREST……………………….. NOW U OFFER DSC/SSC ON WHAT GROUND !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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