KARACHI: Pakistan Stock Exchange (PSX) has proposed to reduce the rate of withholding tax in the gross income earned on margin financing transactions to 2.5 percent from existing 10 percent.
The PSX in its proposals for budget 2020/2021 said that Margin Financing (MF) facility is made available to all Members against net ready market purchases of their clients and proprietary positions.
National Clearing Company of Pakistan Limited (NCCPL) provides a system to MF participants for recording and settlement of MF transactions, with financing terms and conditions pre-determined by the Margin Financee and Margin Financier.
Margin financing facility is made available only in Eligible Securities notified by the SECP.
Presently, the rate of tax on gross Income of the Financier is 10 percent without deduction of any expenditure to earn such income. Whereas, in most cases the funds are borrowed from financial institution for such MF transactions.
The cost involved in Margin Financing includes financing cost payable to financial institution, trading, clearing and depository charges and other administrative cost which render that the amount deducted as advance tax could not be fully adjusted against the tax liability of most brokers leading toward claims for tax refunds that are not time bound.
The PSX said that the proposed reduction in the rate of tax on MF transactions will help develop the market and increase tax collection by FBR because ten years back, the size of similar market for margin transactions was several times higher.
The stock market proposed amendment to Division IIB of Part IV, Fist Schedule to the Income Tax Ordinance, 2001 as follows;
“The rate of deduction under section 233AA shall be 2.5% of profit on mark-up or interest earned by the member, margin financier or securities lender.”