The Pakistan Stock Exchange (PSX) on Wednesday submitted its proposals to the government for the upcoming budget, calling for tax reforms to boost the capital market.
The PSX proposed the government to bring the Capital Gains Tax (CGT) rates on listed securities in line with CGT on the sale of immovable property.
“This is essential to eliminate the tax driven distortion between different asset classes,” the PSX said in its report on budget proposals.
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It also asked to align the rates of CGT on all derivatives and future contracts traded on PSX with future commodity contracts traded on Pakistan Mercantile Exchange Limited (PMEX).
Tax relief for foreign investment
The PSX also sought tax relief to attract foreign investment in the capital market.
“In order to attract and encourage foreign investment into capital market, it is proposed to offer tax relief to foreign investors in terms of exemption on capital gains and dividend earned on such investment, in line with similar tax relief offered for investment in GoP securities,” it proposed.
Rationalisation of tax rates for listed companies
The report called for reinstatement of the repealed section 65C of the Income Tax Ordinance, 2001 amended to allow tax credit to certain companies meeting the prescribed requirements of 25% free float, saying it would generate CGT and other tax revenue.
“Inequality of taxation of businesses should gradually be removed by reducing corporate tax rate/increasing tax rates for Association of Persons (AoPs).”
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The proposal also included the restoration of exemption on inter-corporate dividend between companies eligible for group taxation and enhanced tax credit for small and medium enterprises (SMEs).
Government of Pakistan must move away from short-term measures and frequent changes in tax regime and adopt long-term measures to promote savings and investment and development of the capital market.
The PSX, in its budget proposals, proposed to withdraw the amendment made in clause (29) of Section 2 and newly inserted section 2362 of the Ordinance through Finance Act 2023.
It also requested to reinstate Section 62 of the Income Tax Ordinance that was removed in the Federal Budget 2022-23 to promote savings for the taxpayers with no major impact on revenue.
“Tax status should be grandfathered”
“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,” the PSX report stated.
Elimination of minimum tax regime
The PSX urged that minimum tax regime should be eliminated or reduced for listed companies as such companies are documented and compliant with specific documentation requirements of various statutes.
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It also suggested to rationalise the tax rate on dividend, saying it would generate more investment in stocks and thus more revenue for the federal government.
Introduction of RSIAs and ISAs
The PSX proposed to introduce a mechanism and regulatory structure for the launch of Registered Savings and Investment Accounts (RSIAs) and Individual Savings Accounts (ISAs) to help channel savings towards productive investments.
“These schemes will help channel capital which is invested in unproductive areas and from the large undocumented sector into productive parts of the economy,” it said.
Other proposals include:
- Insert proper definition of Private Fund referring to 2015 regulations
- Reinstate exemption of profits and gains to be given to all categories of Private Equity & Venture Capital including Private Fund
- Revision of CGT rates as provided for mutual funds, CIS and REITs
- Specified exemptions to include Private Fund
- Exempt advance tax on property transfers to/from a REIT Scheme
- Remove sunset clause for all categories of REIT
- Rationalise the current tax rate on dividends
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