KSE to seek relief in taxation on share trading

Karachi Stock Exchange (KSE) will seek relief in taxation on share trading in the proposals for the federal budget 2009-10, sources said. The budget proposals have been completed and will be approved by the KSE board of directors in its meeting scheduled on April 14, 2009, before sending to the ministry of finance, they added.
It is learnt that the KSE will urge the government to withdraw Capital Value Tax (CVT) and Withholding Tax on stock market transactions for larger interest and development of the capital market and more particularly increasing the retail investors base in the country to develop the securities market a true barometer of the national economy.
"If it will not be possible for the government to withdraw the tax withholding on trading shares, the KSE will suggest that the withholding of tax from stock exchange brokers under clauses (a) and (b) and under clause (c) of section 233A of the ordinance may be reduced to its original level of 0.005 percent. It is believed that due to 100 per cent increase in CVT and withholding tax rates, the average daily share volume has gone down drastically.
This has not only affected the income of the exchanges against trading fees and that of Regulation fees paid to the SECP which is linked with trading volume but has also shattered the confidence of small and retail investors. In most of the developed and emerging markets no such taxes are levied and collected from investors/brokers on sale/purchase of shares from the stock market.
In order to facilitate the process of corporatisation and demutualisation and to ensure expeditious completion of the same within the agreed time, certain exemptions would be demanded in the Income Tax Ordinance 2001 as well as Stamp Act.
To achieve the object of more and more new listings of companies to attract general public participation in the industrial process of Pakistan, the government often expresses its concern that despite the stock market boom new listings have not picked up.
Though lately some public offers have taken place but mainly under privatisation programme of the government and mutual funds and banking sector, private industrial units are still shy of getting them listed.
In order to attract more and more companies for listing, it will be proposed that the tax rate for the pubic limited listed companies be also reduced in the same ratio as that of private companies so that not only the corporate tax rates for the listed companies is brought down to the level of 25 per cent as against the non-listed private companies at 35 per cent but differential tax treatment of 10 percent between the listed and not listed companies is also maintained.
This will help in promoting and encouraging better corporate disclosures by the listed companies and corresponding better returns to the equity investors. It will also be proposed that alternatively, all IPOs should be exempted from any capital market related taxes for a period of five years from listing date.
It is also learnt that KSE will suggest that either the dividend received by companies may be exempted from tax or the rate of dividend received by companies be reduced to 5 percent.
In order to promote the listing of more companies on the stock exchange, it will be suggested that present ceiling of Rs 300,000 or 10 percent of the persons taxable income for the year on the cost of acquisition of shares be raised to Rs 600,000 and 25 percent of the persons taxable income for the year respectively.
It will also be proposed that redeemable capital which includes Term Finance Certificates (TFCs) may be removed from the scope as provided for in clause E of sub section (2) of section 7 of the Finance Act, 1989 in order to develop the secondary market for these securities.
The KSE will also propose that tax exemption allowed in case of Provident Fund should be removed and Provident Fund and Voluntary Pension System (VPS) should both be allowed equal tax credit. Incase of VPS, there is a upper limit of Rs 500,000 for tax credit, whereas there is no such limit for gratuity and pension, the upper limit should be removed, leaving the tax credit limit to 20 percent of the taxable income.
On retirement up to 25 per cent lump sum withdrawal should be allowed without tax and remaining amount shall be allowed to be withdrawn on a monthly basis under an annually scheme or income plan whereby income from income payment plan to be tax exempt. Tax credit should be allowed for individuals under presumptive tax regime.