Day: May 23, 2021

Removal of sunset clauses on CGT exemptions for real estate sector demanded

KARACHI: Pakistan Stock Exchange (PSX) has pointed out that at present timelines for exemption from Capital Gain Tax (CGT) are discouraging long-term investors from entering the Real Estate Sector.

Moreover, different Real Estate Investment Trust (REIT) categorization have created distortion and excluded commercial and mixed-use REIT projects, the PSX highlighted the issue in its proposals for the upcoming budget 2021/2022.

It further said that higher rate of tax on dividends as compared to mutual funds (enhanced through Finance Act 2019, rate of tax on dividend from REITs Schemes was enhanced from 15 percent to 25 percent.

Sale of real estate to a REIT scheme at market value is a paper transaction required to transfer title of real estate in the name of trustee.

Furthermore, REIT Scheme is exempt from income tax when 90% income is distributed as dividend and therefore advance tax cannot be adjusted.

The PSX proposed exemption from CGT provided in clause 99A, Part 1, 2nd schedule of Income Tax Ordinance, 2001 should be applied to all categories of REITs (mix-use projects)

– Remove sunset clauses

• June 2023 for Developmental REIT Scheme and Rental REIT Scheme.

— Rate of tax on dividend, which is 25% at present, be synchronized with mutual funds15 percent [First schedule, Part-1, Division-Ill, paragraph B]

— Exempt advance tax on property transfers to/from a REIT Scheme u/s 236C & 236K.

Giving rational to the proposals, the PSX said it will promote documented real-estate will attract more investments particularly by companies with disclosure of actual prices and income. Revenue impact will be positive as it will generate indirect and additional revenues from allied businesses.

May 23, 2021
Withholding tax exemption sought on commodity future contracts

KARACHI: Federal Board of Revenue (FBR) has been urged to exempt withholding tax on transactions made for future contracts at commodity exchange.

The Pakistan Stock Exchange (PSX) in budget proposals 2021/2022 submitted to the FBR, highlighted the issue and stated that currently, buyer of a commodity withholds tax (4 percent-9 percent) from seller before making payment with the exception of growers.

This tax adds cost and puts the investors at a disadvantageous position when dealing in actual commodity exchange at PMEX in futures contracts/e-WHR5 as grain markets are not documented and as such this tax is actually not being paid.

The stock exchange proposed to exempt commodity futures contracts and EWRs from the application of section 153 of the Income Tax Ordinance, 2001 like these are exempt from GST under SRO 445(1)12004 June 14, 2004.

It will be only applicable on physical settlement of futures contract by exchange of delivery of underlying commodity. On contract, CGT is already applicable.

Giving rationale to the proposal, the PSX said that development of regulated and organized commodity markets will greatly benefit the agriculture sector.

Revenue impact will be neutral to positive due to adjustability of withholding tax while documentation leading towards more income tax from traders and related parties.

May 23, 2021
Tax rate disparity discourages corporatization: PSX

KARACHI: Inequality in tax rates for corporate and non-corporate businesses has discouraging corporatization in the country, Pakistan Stock Exchange (PSX) noted in its proposals for budget 2021/2022.

The stock exchange pointed out that corporate business profits are taxed twice: once at company level at 29 percent and on dividend distribution at 15 percent.

As compare to 44 percent of total tax in case of companies, unincorporated businesses are being taxed from 0 percent to 35 percent in slabs.

This inequity in taxation is discouraging corporatization and documentation as unincorporated businesses are subject to substantially lower taxes.

Absence of clarity in tax laws is causing issues of taxation of Limited Liability Partnerships (LLP5) as companies whereas LLPs are essentially AoPs with perpetual life.

Therefore, the PSX recommended that inequality of taxation of businesses shall gradually be removed by reducing corporate tax rate/increasing tax rates for AoPs [First Schedule Part 1, Division I, II, hA & Ill]. Rationale

It said that equality of tax regime will promote corporatization culture leading towards documentation and will therefore generate more tax revenue.

Adding clarity with respect to status of LLP will encourage more businesses particularly in services sector to opt for this perpetual business structure. It will also help in increasing tax revenue from these segments.

May 23, 2021