The Pakistan Stock Exchange (PSX) has submitted a series of tax proposals to the federal government for consideration in the upcoming budget for the fiscal year 2024-25.
These proposals aim to create a more favorable tax environment for the capital market, with the ultimate goal of attracting investment and promoting growth.
Key Proposals:
• Leveling the Playing Field: PSX proposes aligning the Capital Gains Tax (CGT) rates on listed securities with those applicable to the sale of immovable property. This aims to eliminate tax-related imbalances between different asset classes.
• Taxation of Derivatives: The exchange suggests taxing all derivatives and future contracts traded on PSX, including cash-settled ones, at the same rate as future commodity contracts traded on the Pakistan Mercantile Exchange (PMEX).
• Tax Relief for Foreign Investors: To incentivize foreign investment in the Pakistani capital market, PSX recommends offering tax breaks similar to those available for investments in government securities. This could include exemptions on capital gains and dividends earned by foreign investors.
• Encouraging Public Participation: The reinstatement of Section 65C of the Income Tax Ordinance is proposed. This amended section would allow tax credits for certain companies meeting specific requirements regarding free float, potentially generating additional CGT and tax revenue.
• Addressing Tax Disparity: PSX calls for a gradual elimination of the current tax inequality between businesses. This could involve reducing the corporate tax rate while increasing the rate for Associations of Persons (AOPs) and restoring the exemption on inter-corporate dividends between companies eligible for group taxation.
• Supporting SMEs: To foster the listing of small and medium enterprises (SMEs) on the SME Board, PSX proposes a tax credit of 50% of the tax payable for the initial three to four years, followed by a 20% credit thereafter.
• Grandfathering Tax Status: PSX recommends that companies seeking to list on the exchange be allowed to retain their existing tax status at the time of application. This would prevent the opening of new cases for past tax returns, except for those already under investigation.
• Minimum Tax Relief: The elimination or reduction of the minimum tax regime for listed companies is proposed due to their documented and compliant nature under various regulations.
• Rationalizing Dividend Tax: PSX suggests a revision of the tax rate on dividends to encourage further investment in stocks, potentially leading to increased revenue for the government.
• Registered Savings and Investment Accounts (RSIAs): The exchange proposes the introduction of a mechanism and regulatory framework for launching RSIAs or Individual Savings Accounts (ISAs). These schemes would channel savings currently directed towards unproductive investments and the undocumented sector into the productive sector of the economy.
Long-Term Vision:
The PSX emphasizes the importance of the government adopting long-term measures to promote savings, investment, and capital market development. This would involve moving away from short-term, frequent changes to the tax regime.
By implementing these proposals, the Pakistan Stock Exchange hopes to create a more attractive and efficient capital market environment, ultimately contributing to Pakistan’s economic growth.
