Government of Rwanda – World Bank Sign a $20 million Agreement to Support Public Financial Management Reforms.

By | Finance | No Comments

The Public Financial Management Reform Project (PFMRP) will support the Ministry of Finance in expansion of the Integrated Financial Management Information System (IFMIS) coverage and Electronic Government Procurement System (e-GP) as well as provide IT backbone to all decision-making processes in the country.

After the signing, Minister of Finance and Economic Planning Dr. Uzziel Ndagijimana noted that:“Building on the results of the Governance Program-for-Reforms, and successful implementation of the FMIS and e-Government Procurement by the Government, this component will help stabilize the systems, expand their functionality and support the IFMIS roll out to service delivery units by enhancing functionality and stability of the system.”

World Bank Group Country Manager, Yasser El- Gammal said: “This agreement will support the Government to have more reliable medium term budget, and support human capital that is involved in the public financial management space.”

The project will also increase professionalization of public finance officials by funding a mass scale professionalization program for the public finance officials in the areas of accounting and audit, budgeting, procurement.

Beneficiaries of this project include the management and officials of Ministry pf Finance and Economic Planning, Rwanda Public Procurement Authority, Institute of Certified Public Accountants of Rwanda. It will also benefit the private sector and households who through improvements in transparency and more efficient management of public resources which will ultimately lead to improvements in the volume and quality of public services.

SWIFT Caves To US Pressure By Cutting Off Iranian Banks

By | Commodities, Finance | No Comments

Shortly after Trump reimposed nuclear sanctions on Tehran on November 5, the international financial messaging system SWIFT announced the suspension of several Iranian banks from its service. “In keeping with our mission of supporting the resilience and integrity of the global financial system as a global and neutral service provider, SWIFT is suspending certain Iranian banks’ access to the messaging system,” SWIFT said.

The Belgium-based financial messaging service added:

“This step, while regrettable, has been taken in the interest of the stability and integrity of the wider global financial system.”

SWIFT’s decision has further undermined EU efforts to maintain trade with Iran and save an international deal with Tehran to curtail its nuclear program, after President Donald Trump pulled the US out in May. Being cut off from SWIFT makes it difficult for Iran to get paid for exports and to pay for imports, mostly of oil.

As a further note, the EU was one of the few entities not to receive a sanctions waiver from the US earlier this week.

The European Commission was understandably displeased, and on Wednesday said it found the SWIFT decision “regrettable”.

Treasury Secretary Steven Mnuchin warned SWIFT it could be penalized if it doesn’t cut off financial services to entities and individuals doing business with Iran. However, by complying with Washington, SWIFT now faces the threat of punitive action from Brussels.

Washington has been pressuring SWIFT to cut off Iran from the financial system as it did in 2012 before the nuclear deal. Six years, ago the EU imposed sanctions on Iranian banks, forcing SWIFT, which is subject to EU laws, to cut financial transactions with at least 30 of Iran’s financial institutions, including the central bank.

Iranian banks were reconnected to the network in 2016 after the Iran nuclear deal came into force, allowing much needed foreign cash to flow into Tehran’s coffers.

Black money risk alarm could put to test India’s ties with close friend Mauritius

By | Finance | No Comments

“The government of the Republic of Mauritius is deeply concerned by this situation and is of the view that the list stems from a misunderstanding of our financial services sector and has been based on incomplete information about our jurisdiction,” the letter dated July 6 said.

This has occurred despite Mauritius making strenuous efforts to ensure that any concerns were resolved, it said. “This is regrettable in view of the significant and consistent efforts Mauritius has been making over time to safeguard the credibility of its jurisdiction — efforts which have been recognised by international standard setters such as the OECD (Organisation for Economic Cooperation) and IMF (International Monetary Fund),” the letter said.

After the US, Mauritius accounts for the highest level (about 16%) of total foreign portfolio inflows. It’s an inexpensive and a favourite route for many non-resident Indian (NRI) and Person of Indian Origin (PIO) investment managers. The island nation has asked India to consider all the various actions it has taken to tackle money laundering, financial malpractices and terror financing before the final list is drawn up. It will take up the matter with the Prime Minister’s Office and with Sebi

A week ago, global banks acting as custodians for foreign funds including HSBC, Deutsche Bank, Citi, Standard Chartered and JP Morgan shared a list of 25 countries that were tagged as “high-risk jurisdictions” with market regulator Sebi.

Mauritius, China, the United Arab Emirates (UAE), Cyprus were countries that figured in the list of “high-risk jurisdictions”. The others are the Bahamas, Bahrain, Bermuda, British Virgin Islands, Cayman, Channel Islands, Cook Islands, Guernsey, Indonesia, Isle of Man, Jersey, Kuwait, Liechtenstein, Malaysia, Oman, the Philippines, Russia, Saudi Arabia, Thailand, Trinidad and Tobago, and Turkey.

Hong Kong, Switzerland and Luxembourg have been dropped from the list. A senior banker said Sebi will now finalise the names on the basis of the list from custodians. “The Republic of Mauritius has apprised the Indian High Commissioner in Mauritius of its concerns arising out of the situation,” PK Kuriachen, Financial Services Commission (FSC) representative in Mumbai, told ET. “Mauritius is fully committed to fight illicit financial flows in all their forms. It has put in place the necessary legal and institutional framework to protect its shore from illicit financial flows.”

It will persist in these efforts, he said. “Mauritius has over the years continuously and will continue, whenever required, to revisit its legislative and institutional framework with a view to reinforcing financial supervision, enhancing transparency and strengthening the regimes to fight tax evasion, terrorist financing, money laundering, corruption and other financial crimes.”

The classification assumes significance following a new Sebi regulation in April. According to the new rule, NRIs and PIOs cannot be ‘beneficial owners’ (BO) of FPIs (foreign portfolio investors). BO would mean 25% ownership in a company or 15% in a trust or partnership — depending on how an FPI is structured abroad. The entry barrier is stiffer as the threshold (for establishing NRI control or dominance in the fund pool) would be at a lower (and therefore more stringent) level of 10% if the is based in a high-risk jurisdiction.

The BO rule would also be triggered if the fund manager is an NRI though not an investor. Thus, NRIs and OCI (Overseas Citizen of India) card holders will not be able to own more than 10% of such FPIs coming from high-risk jurisdictions while details of any investor who owns more than 10% in the FPI will have to be provided to the custodian.

Gabon: Austerity measures will save CFA140 billion

By | Finance | No Comments

Gabon’s Minister of Budget and Public Accounts, Jean-Fidèle Otandault has said the implementation of austerity measures should result in savings of up to CFA 140 billion francs over the 2018 fiscal year.According to him, these recovery measures for the public finances are the result of cutting down on the staff of the Presidency, downsizing the government by at least 25 percent, slash the number of ministerial cabinets from 24 to 16 leading to a reduction in staff equivalent to 336, as well as abolish the second deputy positions throughout the administration (Deputy Secretary General 2, Deputy Director of Cabinet 2 and Deputy Director General 2).

Mr. Otandault went on to say that the government has gone further by taking bold measures, including cutting high civil service salaries, and striking off staff members who have abandoned their jobs or are terminally sick.

For him, all niches that can bring substantial savings to the state budget will not be spared.

Some unions have already announced that they will not comply with what they call unilateral measures.

“We do not accept to pay the bill, whereas they are the ones who brought the country to the brink of bankruptcy,” Patrick Mombo, an influential member of the Dynamique unitaire trade union said.

Gabonese Prime Minister, Emmanuel Issoze Ngondet is meeting with representatives of Western chancelleries accredited to Libreville to explain the austerity measures being introduced by his government to tackle the country’s current financial crisis.The measures come following the collapse of commodity prices on the international market.

During his presentation scheduled at his office, Mr Ngondet will focus particularly on the reasons for the application of some draconian measures recently taken with a view to putting the national economy back on track.

To this end, last week President Bongo set the tone by downsizing by 40 percent functionaries at the Presidency.

The same measure has been taken at the PM’s office and in other ministries.

He also imposed a three-year ban on civil service recruitment, the acquisition of vehicles costing CFA30 million and traveling first class by senior officials with the exception of ministers.

The Gabonese civil service is considered the most plethoric of the fifteen states in the franc zone.

With a population of 1.8 million, Gabon’s civil service has a 100,000 workforce, representing 55 civil servants per 1000 inhabitants.

Foreign portfolio investors avoiding taxes in India by treating capital gains from non-convertible debentures as interest income

By | Finance | No Comments

Foreign portfolio investors (FPIs) are nowadays categorising the gains from non-convertible debentures (NCDs) as interest income to benefit from tax arbitrage, a stark contrast to the earlier practice of showing such income as capital gains.

Currently, the interest income of FPIs is subjected to five per cent withholding tax, against 15-20 per cent tax on capital gains, depending on the treaty. The amended Double Tax Avoidance Agreements (DTAAs) with several countries, especially Mauritius and Singapore, are the reason behind this shift, experts say.

Earlier, capital gains were a more viable option for FPIs, as they could claim benefits under the treaties. Although a withholding tax of 15-20 per cent was applicable on the capital gains, FPIs obtained relief under the DTAA where capital gains were exempt. However, capital gains tax is no longer exempt even for investors coming via Mauritius, hence FPIs are now classifying it as interest income to save on taxes.

“Ever since the DTAA has been amended, there is a visible shift in how FPIs are structuring income from NCDs. Unlike in the case of shares or rupee-denominated loans, there are a few loopholes in the taxation structure of NCDs, which is helping the foreign funds to minimise their tax outgo,” said a source.

The Indian government brought an amendment to the Income Tax Act in 2013, allowing a concessional withholding tax rate of five per cent to foreign investors, provided certain conditions are met. One important condition is that the concessional rate is applicable only if the interest on the NCD is not more than 500 basis points (bps) over the base rate of State Bank of India (SBI). For instance, the current base rate of SBI is 8.65 per cent. Hence, to qualify for the concessional tax rate, the interest income derived cannot be more than 13.65 per cent. If more, a withholding tax of 20 per cent would be applicable.

These days, FPIs buy instruments with an interest rate fixed below 13.65 per cent to get the concessional tax rate. Over and above the rate, they also include a clause in their NCD agreements, which says the company will have to pay a premium, calculated on the basis of its share price performance at the time of redemption. Although the premium is linked to the performance of the company’s share, it can be categorised as interest income due to loophole in the rules.

“The characterisation of premium payable over NCD at time of redemption as interest or premium is a long-standing tax issue and it will be better if the tax department provides certainty by issuing detailed guidance. This will, in turn, help the foreign investors and also the Indian companies to structure their NCD more efficiently,” said Amit Singhania, partner, Shradul Amarchand Mangaldas.

NCDs are debt instruments with a fixed tenure. However, unlike convertible debentures, these instruments cannot be converted into equity. The government has taken steps to open up the NCD market in the past few years through various measures, including tax sops. Last year, the Securities and Exchange Board of India had allowed FPIs to participate even in unlisted NCDs.

Zambia: Foreign Companies not sub-contracting 20% of the work to Zambian local firms as agreed

By | Commodities, Finance | No Comments

Mr. Chellah said this is in reaction to President Edgar Lungu’s directive of the implementation of the 20 percent subcontract to Zambians by al contractors in the country.
Speaking after the tour of various projects contracted to mostly Chines owned contractors in Lusaka today, Mr. Chellah expressed disappointment to the sites inspected as he found that most of the contractors are not abiding to the 20 percent policy.

He said there is need for the contractors to follow the laws of the country as ignorance is no excuse.
Mr. Chellah who during his tour monitored works on the new Kenneth Kaunda International Airport among others, however expressed satisfaction with the quality of works by the various contractors visited as most of them are on schedule.

And speaking at the same event, Lusaka Province Permanent Secretary Charles Spanje urged contractors to abide by the labour laws of the country.
Mr. Spanje who expressed concern on some workers without protective clothing explained that it is important for contractors to ensure that their workers receive the correct conditions of service.
He said cont4ractors should strive to create and maintain a good working relationship with employees in order to achieve the objectives.
The sites visited also included Office blocks under the Ministry of Home Affairs, the Expansion of the Mungwi road, the Extension of Levy Mwanawasa Teaching Hospital and the Specialized Hospital off Airport road.