KARACHI: Pakistan Stock Exchange (PSX) has demanded the government to reduce capital gain tax (CGT) rates on disposal of shares in the forthcoming budget 2022/2023 to attract local as well foreign investors.
The PSX in its budget proposals submitted to the Federal Board of Revenue (FBR) suggested that CGT rates on listed securities should be brought in line with other regional and OECD countries and with the CGT on sale of immovable property.
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This is essential to eliminate the tax driven distortion between different asset classes. Further, the CGT on all derivatives and future contracts traded on PSX to be taxed in line with future commodity contracts traded at PMEX.
The PSX suggested introduction of registered savings (RSIA) and investment accounts and individual savings account (ISA). It proposed that the government should introduce a mechanism and regulatory structure for the launch of RSIAs or ISAs to help channel savings towards productive investments.
“These schemes will help channel capital which is invested in unproductive areas and from the large undocumented sector into productive parts of the economy,” the PSX added.
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The stock exchange suggested grandfather provision for tax treatment for listed companies on the PSX. “In order to encourage companies to list, their tax status should be grandfathered at the time of listing application i.e. no new cases for past tax returns should be opened, except for such pending cases on which proceedings have already been initiated under the Ordinance, before the date of listing application, will continue as per the provisions of law.”
The PSX urged the authorities to rationalize tax rates for companies listed on the stock exchange. “Reinstatement of the repealed Section 65C of the Income Tax Ordinance, 2001 amended to allow tax credit to certain companies meeting the prescribed requirements of free float.”
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The stock exchange proposed to eliminate minimum tax regime for listed companies. “Minimum tax regime should be eliminated or reduced for listed companies as such companies are documented and compliant with specific documentation requirements of various statutes,” it proposed.
The PSX recommended enhanced tax credit for listed small and medium enterprises (SME). “In order to encourage small and medium enterprises to get listed on the SME Board, the rate of tax for such listed SME companies should be lowered by giving tax credit of 50 per cent of tax payable for three to four years and 20 per cent onwards of the tax payable,” it proposed.
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The stock exchange stressed the need for documenting real estate sector and promotion of REITs structures. The PSX recommended: exempt advance tax on property transfer to / from a RIET Scheme; remove sunset clause for all categories of RIET; reduction of minimum tax rate applicable to RMCs in line with Asset Management Companies i.e. 30 per cent.
In order to unlocking potential of private fund, the PSX suggested: insert proper definition of private fund referring to 2015 regulations; reinstate exemption of profit and gains to be given to all categories of private equity and venture capital including private fund; revision of Capital Gain Tax rates as provided for mutual funds, CIS and REITs; specified exemptions to include private fund.
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For levelling tax for corporates, the stock exchange suggested: inequality of taxation of businesses should gradually be removed by reducing corporate tax rate/increasing tax rates for Association of Persons (AOPs); restoration of exemption on inter-corporate dividend between companies eligible for group taxation.
The PSX said that provincial sales tax on services – jurisdiction issues should be settled in council of common interest. The wording of the laws enacted by the Sindh Revenue Board, Punjab Revenue Authority and Khyber Pakhtunkhwa Revenue Authority are overlapping. “The matter being of equal relevance to all the provinces and affecting the entire services sector, may be placed on the agenda of the Council of Common Interests so that a sharing formula for each province can be devised.”
The stock exchange demanded the authorities of consistent and long term tax policies. It said the government must move away from short term measures and frequent changes in tax regime and adopt long term measures to promote savings and investment and development of the capital market.
