KARACHI: Pakistan Stock Exchange (PSX) has said that tax rates for compliance by corporate entities is much higher than the persons out of the tax net.

The PSX in its proposals for budget 2022/2023 submitted to Federal Board of Revenue (FBR), said corporate business profits are taxed twice. Once at company level at 29 per cent and on dividend distribution at 15 per cent.

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

This inequality 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 Partnership (LLPs) as companies whereas LLPs are essentially AoPs with perpetual life.

Removal of exemption on inter-corporate dividend under section 59B of the Income Tax Ordinance, 2001 is unfavorable to potential corporate groups discouraging compliance with the best practices of corporate governance requirements.

READ MORE: PSX proposes tax exemption on property transactions

The PSX said that inequality of taxation of business shall gradually be removed by reducing corporate tax rate/increasing tax rates for AoPs [First Schedule Part 1, Division I, II, IIA & III].

Restoration of exemption on inter-corporate dividend between companies eligible for group taxation under section 59B of the Income Tax Ordinance, 2001.

Giving rationale to the proposal, the PSX 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 business particularly in services sector to opt for this perpetual business structure. It will also help in increasing tax revenue from these segments.

READ MORE: SMEs should be given tax credit to encourage listing

Definition of AoP in section 80(2) of Income Tax Ordinance, 2001 be amended to include LLP till the time same tax rates are not applied to all forms of business.

Part I, Second Schedule, clause 103C reinstated as follows:

“Dividend income derived by a company, if the recipient of the dividend, for the tax year is eligible for group relief under section 59B.”

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KARACHI: The Federal Board of Revenue (FBR) has been suggested to reduce income tax rates for private equity funds in the upcoming budget 2022/2023.

Pakistan Stock Exchange (PSX) in its proposals for budget 2022/2023, stated that Revamped regulations in 2015 introduced different types of Private Funds by replacing Private Equity and Venture Capital (PE&VC) Regulations.

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Currently, pass-through status under the Income Tax Ordinance 2001 is available to only PE&VCs category. Moreover, current sunset clause up to June 2024 for PE&VC is detracting long-term investors from participating.

A private fund (alternate fund) investing in listed securities attract Capital Gain Tax (CGT) at the rates that applies to unlisted securities (redemption of units of alternate funds will attract treatment of unlisted security under CGT regime, which is significantly higher for corporate investors).

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The PSX suggested to insert proper definition of Private Fund referring to 2015 regulations. It also suggested to reinstate exemption to PE&VC as provided under clause 101 of part I of Second Schedule; in addition to: inclusion of Private Fund; and no sun-set clause.

The PSX recommended that specific rate of 12.5 per cent CGT be provided in Division VII of 1st Schedule of the Income Tax Ordinance, 2001 as provided for mutual funds, CIS and REITs (if more than 70 per cent invested in listed equity securities and/or debt securities).

READ MORE: FBR urged to eliminate minimum tax for listed companies

The stock exchange also sought exemption provided in sub-clause (xii) of clause 11A and clause 47B of Part IV of the second schedule to include Private Fund.

Giving rationale to the proposals, the PSX said that this sector can be developed with rational taxation. So far only 4 registered PE&VC funds will be unable to meet funding needs of SMEs/startups & to attract foreign investors. Revenue impact will be neutral to positive as only CIVs will be exempted but the investors will still be obliged to pay tax. The amendment will exempt private funds from applicability of withholding tax as it is a pass through entity.

READ MORE: PSX proposes rationalizing tax rates for listed companies

KARACHI: Pakistan Stock Exchange (PSX) has proposed tax exemption on transactions of immovable properties to Real Estate Investment Trusts (REITs) in order to promote documentation.

The PSX in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), said REITS are an ideal instrument to document and help develop the real estate sector, a priority for the government.

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They also allow smaller investors to gain exposure to the real estate sector, an important step to reduce wealth inequality in Pakistan.

The PSX proposed exemption from advance tax on property transfer to/from a REIT Scheme u/s 236C and 236K of Income Tax Ordinance, 2001. It also suggested to remove sunset clause i.e. June 2023 for all categories of REIT. Besides, it is also suggested to reduce minimum tax rate applicable to REIT Management Companies (RMCs) u/s 153 in line with Asset Management Companies i.e. 3 per cent.

READ MORE: FBR urged to eliminate minimum tax for listed companies

The PSX said that 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.

Appropriate amendment to be made in the Income Tax Ordinance, 2001.

READ MORE: PSX proposes rationalizing tax rates for listed companies

For proposal relating to sun-set clause, remove “June 30, 2023” from clause 99A of Part I of Second Schedule of the Income Tax Ordinance, 2001.

For proposal relating to Minimum Tax on RMCs, Clause (2)(i) of Division III of Part III of First Schedule of the Income Tax Ordinance, 2001 shall include “service rendered by RMCs.”

READ MORE: PSX suggests grandfather tax provisions for listed companies