A significant facilitation measure for exporters and businesses may be on the horizon, as the Federal Board of Revenue has assured a Senate Finance Sub-Committee that the requirement of bank guarantees or cheques will be examined for replacement with insurance guarantees, wherever legally permissible.
The issue was raised in the context of practical difficulties faced by businesses in arranging banking instruments. Bank guarantees often involve blocked credit limits, collateral requirements and additional banking costs, which can place pressure on working capital, particularly for exporters and businesses with frequent dealings with tax and customs authorities.
If implemented through the relevant legal and procedural amendments, insurance guarantees could provide businesses with an alternative form of security while reducing their dependence on conventional banking facilities. For taxpayers, however, the important point is that this is presently a policy-level assurance and its practical benefit will ultimately depend upon the areas in which FBR formally permits insurance guarantees and the conditions prescribed for their acceptance.