PSX taxation recommendations will increase government’s revenues

KARACHI: The Pakistan Stock Exchange (PSX) has urged the government to consider its proposals for federal budget 2016-17 as these would increase investment in the country with no impact on government revenue.

PSX has proposed to withdraw tax on issue of bonus shares, rationalization of capital gains tax, withdrawal of capital value tax and 5-year income tax rebate to new listings of companies on PSX.

“The proposals if incorporated in the finance bill would have a revenue impact of just Rs2.917 billion on the government’s revenue, however expected revenue gain due to proposed package comes to Rs3.962 billion as the market value would increase by 20 percent,” Arif Habib, Chairman Arif Habib Group said.

“Since government holds 20 percent of the market float, increase in market value would result in valuation gain to government to the tune of Rs350 billion,” Arif habib added.

Arif Habib said as government sifted emphasize towards growth of the economy, capital market should also be ready to respond positively.

To achieve rapid GDP growth, capital market requires some tax measures in the forthcoming budget 2016-17.

Keeping in view the importance of the capital market as a revenue generator for the government, the PSX has presented a number of proposals to the government which if accepted will further bolster the market’s performance and will not impact the government’s revenue collection.

It would help in achieving higher value of listed shares comparable to regional countries with possible increase of Rs1.8 trillion in market capitalization resulting in increase in value of government’s shareholding in listed companies by Rs340 billion as the government holds 20 percent of the market.

Arif Habib said the package, if approved in the budget, would help in raising equities of approximately Rs250 billion for privatization, CPEC projects and expansions.

“This will also help in rapid growth of GDP by making available necessary financial resources for investments in the economy by providing job opportunities to its people and higher revenues with lower tax rates for the government as the size of economy increases, Arif Habib mentioned”.

Giving background on the preparation of budget proposals by the PSX, Chairman Munir Kamal mentioned that rationalization of taxes like bonus tax, capital gains tax, capital value tax, exclusion taxes on REITs and listing tax incentives having a combined revenue impact of 0.4 percent of the PSX’s total tax had been taken up amounting to a mere Rs3.0 billion, while the stock market stakeholders were contributing a total of Rs670 billion to the exchequer a year.

It is proposed that tax on issue of bonus shares be removed since it has no significant impact as it is only an accounting entry and has discouraged companies from issuing bonus shares since its introduction.

Rationalization of Capital Gains Tax (CGT) is also proposed as at the time of introduction of this tax, government had communicated rate of CGT would be determined after mutual agreement; however that is currently not the case. Government had also agreed to abolish Capital Value Tax (CVT).

A tax rebate of 20 percent for one year on the listing of new companies was also introduced during the last budget. The PSX has proposed this rebate be extended for five years to encourage more companies to list.

Lastly, it is proposed to reintroduce the incentives that were available to REITs last year, which were withdrawn shortly after the launch of South Asia’s first REIT.

Chairman PSX Munir Kamal said the government remained the biggest beneficiary of the stock market’s performance citing that in addition to tax contributions of over Rs670 billion, the government since 2003 raised Rs453 billion and Rs170 billion over the last two years through privatization deals. In addition to above, government also received Rs14 billion in investment profits from National Investment Trust (NIT) in FY14.

Pakistan Stock Exchange (PSX) represents tax payers who are fully documented and are contributing over Rs670 billion, i.e. over 20 percent of FBR’s revenues.

Pakistan Stock Exchange Limited (PSX) has also criticized frequent changes in the capital market tax regime, which is detrimental in attracting investors, both local and foreign.

“It is therefore recommended that taxation policy should be for a medium to long term,” Arif Habib, Chairman Arif Habib Group said while speaking at a briefing at the bourse on Thursday.

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