Abolishing advance tax on share sale, purchase on the cards

Abolishing advance tax on share sale, purchase on the cards

KARACHI: The government is reportedly considering the abolition of the advance tax on the sale and purchase of shares in the capital market, a move prompted by the Pakistan Stock Exchange (PSX) and Pakistan Stockbrokers Association’s demands.

Sources have indicated that the tax, which is currently levied under Section 233A of the Income Tax Ordinance, 2001, may soon be revoked.

Under the current regulations, PSX is obliged to collect a 0.2 percent advance tax from its members on the sale and purchase of shares, in lieu of the tax on the commission earned by these members. The PSX, along with the PSX Stockbrokers Association, put forth their requests to promote the capital market during Prime Minister Imran Khan’s visit to Karachi on December 9, 2018.

Subsequently, the finance ministry sought input from the Federal Board of Revenue (FBR) and the Securities and Exchange Commission of Pakistan (SECP) on these proposals. Finance Minister Asad Umar, while visiting the Karachi Chamber of Commerce and Industry (KCCI) on January 12, 2019, hinted at potential resolutions for the demands, suggesting that the stock market could soon expect “good news.”

The proposals presented by PSX and the brokers association to the Prime Minister encompassed various key areas:

1. Abolition of Advance Tax on Sale/Purchase of Shares: The foremost demand was the removal of the 0.2 percent advance tax imposed on the sale and purchase of shares in the capital market. This step aims to reduce the financial burden on investors and create a more attractive environment for share trading.

2. Allowance for Carrying Forward Capital Losses: The second proposal focused on permitting the carry forward of capital losses for up to three years. This would offer relief to investors by allowing them to offset capital losses against future gains, ultimately promoting investment.

3. Rationalization of Taxation for Holding Companies on Inter-Corporate Dividend: The third demand sought the rationalization of taxation for holding companies regarding inter-corporate dividends. This move is intended to streamline the tax structure and create a more equitable system for holding companies.

4. Rationalization of Capital Gain Tax on Equities in Line with Real Estate: The fourth proposal aimed to rationalize the capital gains tax on equities in a manner that aligns with the tax structure applicable to the real estate sector. This would bring about consistency and fairness in the taxation of different asset classes.

5. Promotion of Government and CPEC Project Debts Listing at PSX: PSX and brokers association suggested the promotion of government and China-Pakistan Economic Corridor (CPEC) project debts listing at the stock exchange. This initiative would provide investors with a diversified set of investment opportunities.

6. Curtailing Overregulation of Brokers: The final demand was aimed at reducing the overregulation of brokers to facilitate equity investment. By streamlining regulatory procedures, the authorities could encourage more individuals and entities to engage in equity trading.

The consideration of these proposals underscores the government’s commitment to enhancing Pakistan’s capital market and encouraging investment. These potential policy changes may create a more favorable environment for investors and ultimately contribute to the growth and stability of the country’s financial sector. The final decision is eagerly awaited by the capital market participants and investors alike, who anticipate the potential positive impact of these developments on the financial landscape.