Karachi, March 20, 2024 – The Pakistan Stock Exchange (PSX) has emphasized the need for tax rate rationalization for listed companies in the upcoming budget of 2024-25.
In its tax proposals submitted for the federal budget, the PSX highlighted the crucial role of listed companies in bolstering economic growth and generating increased tax revenue for the government.
One of the key arguments put forth by the PSX is the correlation between listing on the stock exchange and substantial growth in profits for companies. This growth is attributed to effective corporate governance practices, enhanced disclosures, and the ability to raise capital from the market. Consequently, a surge in the number of listed companies and their profitability directly contributes to higher tax revenues, including incremental revenue from Capital Gains Tax (CGT).
Drawing a comparison with regional counterparts, the PSX underscored that the average corporate tax rate in the Asian region stands at 19.80 percent, while in Pakistan, it currently rests at 29 percent. Additionally, the imposition of a super tax of up to 10 percent for the tax year 2023 onwards, based on income brackets, further burdens high-earning individuals and entities. To remain competitive globally and regionally, the PSX asserts the necessity of reducing corporate tax rates after factoring in tax credits.
In a bid to incentivize companies to opt for listing and contribute to economic documentation, the PSX proposed a permanent reduction in corporate tax rates for listed entities. The proposal includes providing a tax credit of 20 percent of the tax payable for companies meeting specific criteria, including maintaining a minimum free float of 25 percent consistently. Such a measure, according to the PSX, would not only foster economic documentation but also ensure a sustained positive impact on tax revenue in the long term.
Highlighting the trends in listings and de-listings on the Pakistan Stock Exchange over the past five years, the PSX presented a comprehensive summary. During this period, 23 companies were newly listed with a cumulative capital of Rs 60.27 billion. However, 28 companies underwent de-listing, with a total capital of Rs 7.37 billion, while 13 companies were delisted due to mergers, with a combined capital of Rs 6.27 billion.
The call for tax rate rationalization by the PSX underscores the critical role of listed companies in driving economic growth and revenue generation. By aligning tax policies with global and regional standards and incentivizing listing on the stock exchange, Pakistan can foster a conducive environment for economic documentation and sustainable growth.
The forthcoming budget will be closely watched by stakeholders to see if the government considers these proposals put forward by the PSX, which could potentially reshape the economic landscape and strengthen the capital market ecosystem in Pakistan.
