KARACHI: Pakistan Stock Exchange (PSX) has recommended to reduce the rate of withholding tax on the gross income earned on margin financing (MF) transactions from 10 percent to 2.5 percent.
The PSX in its proposals for budget 2021/2022 said that MF facility is available to all Trading Rights Entitlement Certificate (TREC) holders against net ready market purchases of their clients and proprietary positions.
NCCPL provides a system to MF participants for recording and settlement of ME 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 institutions for such ME transactions.
The cost involved in Margin Financing includes financing cost payable to financial institution, trading, clearing and depository charges and other administrative cost which means that the amount deducted as advance tax will not be fully adjusted against the tax liability of most brokers, resulting in claims for tax refunds that are not time bound.
The PSX proposed to reduce the rate of withholding tax on the gross income earned on MF transactions from 10 percent to 2.5 percent.
Alternatively, it is proposed to charge 10 percent on the net income (spread) earned on such financing.
Giving rationale to the proposals, the stock exchange said that reduction in the rate of tax on MF transactions will help develop the market and increase tax collection by Federal Board of Revenue (FBR) because ten years back, the size of similar market for margin transactions was several times higher.
