The Karachi Stock Broker Association has strongly condemned the proposed budget for 2016-17 as it seeks to penalise the most documented, transparent and compliant stock market. "The exemplary role being played by the stock market in facilitating revenues for the government through privatization has been overlooked," said the Association in a statement on Wednesday.
What not understandable was the lack of understanding and the negative impact of the proposals on the capital market, it said. No proposal of Pakistan Stock Exchange (PSX) was given any consideration by the FBR. The stock brokers are also disappointed at the role of the SECP being unable to impress upon the FBR, the negative impact of tax proposals especially on the Capital Gain Tax (CGT) front.
The extension of holding period from 4 to 5 years for securities will be a major road block in the divestment of shares of the PSX. The entire exercise of divestment will be futile. Additionally, as the SECP has started imposing exorbitant fees on the PSX as also stringent and coercive regulations on the Stock Brokers. The 100 percent increase of Advance Tax in lieu of commission from 0.01 percent to 0.02 percent will increase the cost of business at capital market and turn away investors resulting in drastic fall of turnover and revenues for the government.
The rate of Advance tax in lieu of Commission at 0.01 percent is already excessive and results in refunds worth millions and one cannot get it without hassle and cost. People will prefer to invest in commodities and real estate as they are mostly undocumented and lucrative. The members cumulatively are the highest tax payers in the country and pay more than a billion rupees as advance tax on purchase and sale of shares and CVT (double taxation) plus service charges of Pakistan Stock Exchange, NCCPL, CDC & SECP.
Moreover, the members are required to pay 14 percent sales tax to the Sindh Revenue Board amounting to hundreds of millions of rupees. The investors also pay Capital Gain Tax to the tune of over 6 billion in 2014-15 and 4 billion up to April 2016. The documented investors/ stock brokers are also subjected to double taxation in terms of dividend income on already paid tax by the listed companies. Even the bonus shares which is a book entry by listed companies for preserving cash for expansion has been subjected to tax for the last two years.
The percentages of commission earned by stock brokers via taxes paid by them works out to niggardly amount and yet refunds are due to them. The analogy of petrol pumps commission against the turnover of oil marketing companies explains the situation. Oil marketing companies and stock market turnover figures are astronomical but in reality the real profit is negligible.
The stock brokers demanded the withdrawal of 100 percent increase of advance tax on commission, removal of tax on bonus shares, withdrawal of CVT as promised at the time of levying CGT, reverting to original status of CGT to attract more investment from organised, documented and transparent sector of the economy, to encourage employment and economic activity 0 percent rate of tax on REITs which actually removes distortion in pricing of real and declared value of real estates.
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