New listing companies: SECP seeks reduced corporate tax rate

The Securities and Exchange Commission of Pakistan (SECP) has asked the Federal Board of Revenue (FBR) to apply reduced corporate tax rate on new listing of companies on stock exchanges in the 2009-10 budget. It is learnt that the SECP has proposed tax slabs for new listing of companies through amendment in the Schedule-I, Part I, Division II of Income Tax Ordinance, 2001.
The amendment has been proposed to encourage new companies for listing on the stock exchanges, which would increase market capitalisation. According to the proposed amendment, the rate of tax imposed on the taxable income of a company for the tax year 2007 and onward shall be 35 percent.
Provided where a Company is listed on a stock exchange after June 30, 2009, the rate of tax on the taxable income of such company for a period of five years from the year of its listing subject to minimum free float as follows: Where paid-up capital is Rs 200 million to Rs 1 billion (free float 50 percent), the tax rate should be 30 percent; where paid-up capital is Rs 1 billion to Rs 5 billion (free float 30 percent), the tax rate should be 25 percent; and where paid-up capital is above Rs 5 billion (free float 20 percent), the tax rate should be 20 percent.
Sources said that the low corporate tax for newly listed companies would act as an incentive for such companies. Some countries have provided tax incentives to newly listed companies by lowering the corporate tax rate for a period of 5 years or more provided these companies offer a high amount of capital, say 40 percent to 50 percent of their shares to the general public.
The listed companies are required to adhere to the "Code of Corporate Governance" for greater transparency in the corporate sector. Listed companies follow improved reporting and disclosure standards by publishing and circulating their accounts on quarterly basis.
The proposed tax difference between listed and un-listed companies will serve as part of compensation for closely governed listed companies. The listing of new companies on the stock exchange will resultantly enhance revenue collection in the form of capital value tax (CVT) and withholding tax due to increased trading volume. The reduced rate of income tax will encourage new listing which will resultantly increase listed capital and market capitalisation, the SECP added.