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.
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).
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).
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.
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.
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.
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.
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.”
KARACHI: Pakistan stocks likely to move with report of federal budget 2020-2023, which is scheduled to be presented on June 10, 2022.
Analysts at Arif Habib Limited said that the market is expected to remain range bound given Federal Budget 2022-2023 is anticipated to be announced on June 10, 2022.
“The outcome of the budget presented will determine the market direction in the future,” the analysts said.
Moreover, the government may opt to roll-back the remaining subsidy on petrol and diesel next week, which may further ignite inflationary concerns.
All said, one positive development which market be looking forward to is the inflow from Chinese banks (about $2.3 billion) which, according to Finance Minister, is due shortly.
The benchmark KSE-100 of Pakistan Stock Exchange (PSX) is currently trading at a PER of 4.1x (2022) compared to Asia Pacific regional average of 12.4x while offering a dividend yield of 9.6 per cent versus 2.7 per cent offered by the region.
Following the decision of partial removal of subsidy on petrol and diesel, increasing the prices by PKR 30/liter each, market commenced on a positive note this week on hopes of resumption of IMF as these measures are deemed to be a pre-requisite for the Fund’s approval for seventh review.
As a result, Pak Rupee staged a recovery against the greenback (closing at PKR 197.92 this week). However, concerns over inflation (which reached a 28-month high of 13.8 per cent in May 2022) and uptick in government securities yields in T-Bill auction, dampened the sentiment at the index.
Moreover, the jump in National Saving Schemes (NSS) rate (150bps) and the expected hike in power prices (PKR 7.91/unit) sent alarm bells ringing.
Meanwhile, the last trading saw panic at the local bourse after Moody’s Investors Service downgraded Pakistan’s outlook from stable to negative while the announcement of another PKR 30/liter fueled inflationary concerns.
The market closed at 41,315 points, shedding 1,547 points (down by 3.6 per cent) WoW.
Sector-wise negative contributions came from i) Commercial Banks (363 points), ii) Cement (309 points), iii) Fertilizer (163 points), iv) Technology & Communication (124 points), and v) Chemical (93 points).
Whereas, sectors which contributed positively was Vanaspati & Allied Industries (1 points). Scrip-wise negative contributors were LUCK (141 points), HBL (129 points), FFC (87 points), TRG (68 points) and EPCL (55 points). Meanwhile, scrip-wise positive contribution came from POL (13 points), ABOT (10 points), MARI (9 points), SCBPL (6 points) and COLG (6 points).
Foreign selling was witnessed this week, clocking in at $ 0.42 million compared to a net sell of $ 1.51 million last week. Major selling was witnessed in Banks ($ 4.2 million) and Cement ($ 0.4 million).
On the local front, buying was reported by individuals ($ 5.6 million) followed by Companies ($ 5.6 million). Average volumes clocked in at 210 million shares (down 25 per cent WoW) while average value traded settled at $ 30 million (down 23 per cent WoW).
KARACHI: Pakistan Stock Exchange (PSX) has urged the tax authorities to allow tax credit to Small and Medium Enterprises (SMEs) to encourage listed on the stock exchange.
The PSX in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), said SMEs contribute immensely to Pakistan’s employment, export and GDP growth, and provide 80 per cent of all employment in the country.
A well-functioning SME segment at the Stock Exchange offers a range of benefits including greater access to growth capital for innovative SMEs, documentation, good governance, new jobs through entrepreneurship, more investment opportunity for domestic investors and local venture capitalists.
PSX has launched an SME board to attract smaller companies to get listed on the exchange. The aim is to facilitate SMEs with an alternative to bank financing for their expansion growth and projects.
In order to encourage small and medium enterprises to get listed on the SME Board, it is proposed that the rate of tax for such listed SME companies be permanently lowered by giving tax credit of 50 per cent of tax payable for 3 to 4 years of listings and then onwards 20 per cent of the tax payable.
The PSX said that the share of the manufacturing sector in the job market is only 14 per cent. This is very low because 80 per cent of the manufacturing investments in large scale industries provide less than 20 per cent of the manufacturing jobs. Over 80 per cent jobs are provided by SMEs.
There are significant fiscal tax credit benefits in Spain, Kenya, Brazil, Argentina and other parts of the world for SMEs.
The PSX proposed: In clause (iii), Division II, Part I of the First Schedule to the Income Tax Ordinance, 2001 after a colon the following proviso shall be added, namely:
“Provided that where a tax payer is a small or medium sized company as defined under the Third Schedule of the Companies Act, 2017 and is also listed on the registered Stock Exchange in Pakistan, the tax credit @ 50% of the tax payable on the taxable income of such company, other than a banking company, shall be allowed for the tax year 2021 and onwards.”
KARACHI: Pakistan stocks plunged by 923 points on Friday owing to weakening fiscal condition and concerns of further monetary tightening.
The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) ended at 41,315 points from previous day’s closing of 42,238 points, showing a decline of 923 points.
Analysts at Arif Habib Limited said that the benchmark KSE-100 index witnessed yet another bloodbath session today due to monetary tightening and inflationary concerns.
The market opened in the negative zone and remained under pressure throughout the day as investors opted for profit selling over uncertain economic scenarios.
Volumes increased from 157.0 million shares to 225.4 million shares (+43.6 per cent DoD). Average traded value also increased by 13.3 per cent to reach $30.3 million as against $26.7 million.
Stocks that contributed significantly to the volumes are KEL, PRL, CNERGY, PAEL and PIBTL.
KARACHI: The Federal Board of Revenue (FBR) has been urged to eliminate minimum tax regime for listed companies in order to encourage documentation of economy.
The PSX in its proposals for budget 2022/2023, submitted to the FBR stated that through the concept of minimum tax is prevalent in a few other countries, however, in other countries, as a principle, it is levied only in cases where high-income taxpayers don’t pay any tax due to different tax exemptions available to them.
It suggested that minimum tax regime should be eliminated from listed companies as such companies are strongly compliant towards specific documentation requirements of various statues.
The application of minimum tax on listed companies has resulted in discouraging documentation of the economy. Listed companies have significant documentation and regulatory requirements and need to engage external auditors to audit their business affairs.
The stringent regulations keep the listed companies strongly complaint towards filing of income tax / sales tax returns, paying quarterly advance taxes, adjustment of withholding taxes on sales and purchases and consequently filing withholding statements, statements on final taxation and fulfilling various other requirements which resultantly align their books of accounts with the statutory requirements and provide a comfort zone to the authorities and stakeholders over the reported numbers.
KARACHI: Pakistan Stock Exchange (PSX) has proposed rationalizing tax rates for listed companies through incentives and credits, in order to encourage documentation of economy.
The PSX in its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR) said that it is generally observed that when companies opt for a listing on a stock exchange, their profits grow substantially due to effective corporate governance, better disclosures, and ability to raise capital from the market. Increased number of listed companies and higher profitability leads to higher tax revenue for the government, including incremental revenues from CGT. Hence it is important to encourage companies to get listed on PSX.
However, tax credit on enlistment under section 65C has been omitted by the Finance Act, 2021. This tax incentive was a very small carrot with no significant revenue impact. Had this section not been omitted, only 8 listed companies would have availed this tax credit which we estimate, based on their latest audited financial statements, the tax revenue impact would have been Rs. 342 million per annum.
Further, the CGT collected on these 8 symbols for the 6 months period from July 2021 to December 2021 is Rs. 237 million, and, extrapolating based on this 6 months average collection of CGT, the tax collection for the 12 months period could be Rs. 474 million, compared to the total estimated tax credits of Rs. 342 million that would have been availed by these 8 companies.
The average rate of tax in the Asian region is 19.62%; whereas, currently in Pakistan the corporate tax rate is 29%. As such it is imperative that the corporate tax rate after the tax credit is brought down reasonably to compete with the other regional and global countries.
Therefore, in order to encourage documentation and create a long term positive impact on tax revenue, there should be reduced rates of tax for listed companies compared to unlisted companies.
To encourage documentation of the economy, the corporate tax rate should be permanently lowered for listed companies, by giving tax credit of 20% of tax payable for those companies that meet the prescribed requirements including a minimum free float of 25% throughout. This will be long term positive for tax revenue.
The table below outlines the five-year summary of listings and de-listings on the Pakistan Stock Exchange:
Particulars
Number of Companies
Capital (Rs.)*
New Listings
24**
57,381 Million
De-listings
38
7, 241 Million
Delisted due to Merger
9
120, 525 Million
*As of December 31, 2021
**It includes listings of preference shares of already listed companies.
Rationale
i) It is generally observed that publically-listed companies are able to improve profitability due to effective corporate governance, better corporate disclosure and availability of additional funds.
ii) The incremental benefits arising from the preferential tax structure for listed companies will foster a business environment that encourages new listings on the stock exchange, resulting in higher trading volumes and lead to:
a) Higher tax revenue from listed companies’ income as a result of higher corporate profits.
b) Higher revenues from tax on brokers activity on new listings.
c) Higher revenue from Capital Gains Tax on disposal of newly listed securities
iii) Furthermore, with the government’s increased pace of privatization of its entities, the stock market will attract local and foreign investors and increase the market size. The average rate of tax in the Asian region is 19.62%; whereas, currently in Pakistan the corporate tax rate is 29%. As such it is imperative that the corporate tax rate after above tax credit is brought down reasonably to compete with the other regional and global countries. Following are the average worldwide corporate tax rates:
LOCATION
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Africa
29.0
28.3
27.9
27.9
27.5
28.73
28.81
28.45
28.50
27.97
Asia
22.9
22.1
21.9
22.6
21.9
20.05
20.65
21.32
20.06
19.62
Europe
20.4
20.6
19.7
20.1
20.5
18.35
18.38
20.27
19.99
19.84
Oceania
28.6
27.0
27.0
27.0
26.0
23.67
22.00
23.75
23.75
23.75
North America
33.0
33.0
33.3
33.3
33.3
23.08
23.01
25.85
26.06
26.37
OECD
25.2
25.3
24.1
24.9
24.8
24.18
23.93
23.59
23.51
23.04
Global
24.4
23.7
23.6
23.9
23.6
22.96
23.03
24.18
23.85
23.54
Proposed Amendment
Reinstate section 65C of Income Tax Ordinance, 2001 to be read as under:
“Where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan, a tax credit equal to twenty percent of the tax payable shall be allowed for the tax year in which the said company is enlisted and for the following years for those companies that meet the prescribed requirements including a minimum free float of 25% throughout and”.
KARACHI: Pakistan stocks ended down by 518 points on Thursday owing to rising concerns of further monetary tightening.
The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) ended at 42,238 points from previous day’s closing of 42,756 points in interbank foreign exchange market, showing a decline of 518 points.
Analysts at Arif Habib Limited said that the the market continued selling momentum from the previous session as rise in 3 months Treasury-Bills yields went up by 75 basis points to 15.25 per cent which raised concerns over a possible hike in the policy rate.
It is pertinent to mention that the State Bank of Pakistan (SBP) in its latest monetary policy announcement on May 23, 2022 raised the policy rate by 150 basis points to 13.75 points.
The KSE-100 index made an intraday low of 623 points as selling pressure was witnessed across the board. Volumes remained dull although 3rd tier stocks were in the limelight.
Sectors contributing to the performance include Banks (-105.8 points), Fertilizer (-66.8 points), Cement (-62.3 points), Technology (-48.7 points) and Chemicals (-45.8 points).
Volumes decreased from 194.4 million shares to 157.0 million shares (-19.2 per cent DOD). Average traded value also decreased by 1.2 per cent to reach US$ 26.8 million as against US$ 27.1 million.
Stocks that contributed significantly to the volume are PRL, UNITY, CNERGY, SILK and WTL.
KARACHI: Pakistan Stock Exchange (PSX) has suggested the tax authorities to introduce grandfather provisions for tax treatment of listed companies.
In its proposals for budget 2022/2023 submitted to the Federal Board of Revenue (FBR), the stock exchange recommended grandfather provision for tax treatment of companies, which list on the PSX.
The stock exchange said in view of strong structural reforms in the capital market, companies in Pakistan have immense potential to raise funds from the capital market. This will result in greater documentation of the economy and increased tax revenue. At the same time this will help to grow the capital markets, provide attractive investment opportunities and hence improve the savings and investment rates in Pakistan. Listed companies become part of the documented, regulated and formal corporate sector. Hence, PSX is continuously endeavoring to encourage listings.
It is proposed that in order to encourage companies to list, their tax status should be grandfathered at the time of listing application i.e. no new cases for past tax returns should be opened, except for such pending cases on which proceedings have already been initiated under the Ordinance, before the date of listing application, will continue as per the provisions of law.
It is well known that a large part of Pakistan’s economy is undocumented and a significant number of companies operate in the informal sector. This will encourage such companies, particularly SMEs, to become documented and start paying taxes, without the fear that past tax returns or lack of them will be questioned. Moving forward they will be documented and paying full tax. Hence, this will be a significant revenue positive measure.
“The provision of section 122, section 176 and section 177 shall not be applicable to those taxpayers being companies which opt for enlistment on the Main or GEM Board of Pakistan Stock Exchange, except such pending cases on which the proceedings have already been initiated under the Ordinance, before the date of listing application, will continue as per the provisions of law.”
KARACHI: Pakistan stocks ended down by 322 points on Wednesday over expectations of adverse budgetary measures.
The benchmark KSE-100 index of Pakistan Stock Exchange (PSX) ended at 42,756 points from previous day’s closing of 43,078 points, showing a decline of 322 points.
Analysts at Arif Habib Limited said that the market remained under pressure as investors remained stagnant over expectations of an adverse budget announcement.
The KSE-100 plunged to 354 points as selling pressure was witnessed across the board as concerns over increasing inflation kept the investors at bay.
Main board activities remained dull on the contrary hefty volumes were observed in the 3rd tier stocks.
The Index closed at 42,756.04 points, down by 322.10 points (-0.75 per cent DOD). Sectors contributing to the performance include Power (-67.8 points), Banks (-65.7 points), Cement (-55.2 points), Technology (-41.1 points) and E&P’s (-32.4 points).
Volumes decreased from 285.3 million shares to 194.4 million shares (-31.9 per cent DOD). Average traded value also decreased by 27.6 per cent to reach $ 27.0 million as against $ 37.3 million.
Stocks that contributed significantly to the volumes are SILK, UNITY, GGL, PRL and FFL.
