PSE Submits Budgetary Proposals For 'broad-based Capital Market' With Drastic Tax Reforms

ISLAMABAD, (UrduPoint / Pakistan Point News - 23rd May, 2023 ) :The pakistan stock exchange (PSE) Tuesday presented around a dozen proposals for incorporating in the federal budget 2023-24 to establish a 'broad-based capital market' for achieving important economic and social objectives like increasing the number of tax payers, savings, investment rates and reducing wealth inequality.

Forwarding the proposals to the Finance Division and Federal board of Revenue (FBR) , the PSE stressed the need for taking appropriate tax measures to increase investments and savings in the economy to compete with other markets, said a press release issued here.

It proposed to remove the flat Capital Gain Tax (CGT) rate of 12.5% applicable on disposal of securities acquired on or before June 30, 2022, CGT rate for all derivatives and future contracts traded on stock exchange is proposed to be taxed at 5%.

In order to attract foreign investors into the capital market, it is proposed to exempt income derived from such foreign investments from tax.

The PSE proposed to add an explanation under Section 37A to clarify that the share of a public company, disposed off in a tax year, "becomes a security" with effect from the date of acquisition.

The Finance (Supplementary) Act, 2023 has barred application of section 37A on disposal of shares of a listed company made otherwise than through registered stock exchange and which are not settled through National Clearing Company of Pakistan Limited (NCCPL) and the provisions of section 37 section are to apply in such case.

It proposed that offer for sale at the time of listing should be excluded from the proviso's purview.

To encourage documentation of the economy, the corporate tax rate should be lower 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.

Inequality of taxation of businesses shall gradually be removed by reducing corporate tax rate/increasing tax rates for AoPs (First schedule Part 1, Division I, II, IIA, IIB & III).

Restoration of exemption on inter-corporate dividend between companies eligible for group taxation under section 59B of the Income Tax Ordinance, 2001.

PSE proposed that the rate of tax for listed Small Medium Enterprises (SME) companies be lowered by giving tax credit of 50% of tax payable for 3 to 4 years of listing and then onwards 20% of the tax payable.

It requested to reinstate Section 62 of the Income Tax Ordinance that was removed in the Federal Budget 2022-23 whereas provide tax credit of 100% to all categories of private funds without any sunset clause.

Restore exemption of tax on capital gain, earlier available to the investors of private funds or a specific rate, as provided for mutual funds, CIS and REITs.

Exclude private funds from application of minimum and withholding taxes.

PSE proposed to exempt advance tax on property transfers to/from a REIT Scheme u/s 236C & 236K and remove sunset clause i.e. June 2023 for all categories of REIT.

Under clause 99A, Part I of Second Schedule, replace 'immovable property' with 'real estate' as defined under the Real Estate Investment Trust Regulations, 2022.

Under clause 11A, Part IV of the Second Schedule, add "Special Purpose Vehicle, which has the same meaning as defined under the Real Estate Investment Trust Regulations, 2022".

The stock exchange proposed that in order to encourage companies to list, their tax status should be grandfathered at the time of listing application.

Minimum tax regime should be eliminated from listed companies as such companies are documented and compliant with specific documentation requirements of various statutes, PSE proposed.

Meanwhile, PSE proposed to remove the following clause (d) under Division I, Part III of the First Schedule: (d) 25% in case of a person receiving dividend from a company where no tax is payable by such company, due to exemption of income or carry forward of business losses under Part VIII Chapter III or claim of tax credits under Part X of Chapter III.

The matter being of equal relevance to all the provinces and affecting the entire Services Sector, may be placed on the agenda of the Council of Common Interests so that a sharing formula for each province can be devised to resolve this matter.

It proposed that regulatory structure for the launch of Registered Savings and Investment Accounts and Individual Savings Accounts be introduced to help channel savings towards productive investments.

RSIAs and ISAs will help bring capital from both unproductive and the large undocumented sectors into the formal, productive sectors of the economy. Being tax free, these schemes will induce and promote national savings.

PSE also proposed it should be considered that the changes in policies should be prospective rather than retrospective in nature. Therefore, the government is requested to rectify all such amendments which have retrospective effect so that all the amendments made have a prospective effect.

Government of Pakistan must move away from short term measures and frequent changes to tax treatment and adopt long term measures to promote savings and investment and development of the capital market.