The federal budget for the fiscal year 2004-05 (FY-05) presented in the National Assembly on the 12th of June,2004 contained a proposal to levy capital value tax (CVT) @ 0.1 per cent on the purchase of shares which meant that on the purchase of shares valuing Rs one crore, the buyer will be required to pay tax amounting to Rs 10,000 only.
According to the business lobby, as per the news appearing in the press, the total revenue accruing to the Government from this tax will be around Rs one 1.5 billion. Is it really a heavy burden on the pockets of the buyers? Certainly, it is not so.
The people in the country, and most particularly the business community, are not prepared to part with a portion of their earnings in the shape of taxes. So, immediately following the announcement of the budget, the lobby of the big belly seths started demonstrations against the proposed tax and pressed for its withdrawal.
The Government promptly took notice of the protest and has constituted a committee to find an alternative solution.
As per the news items appearing on the business pages of an Karachi English daily, the bourses' representatives had assured the Government that they would make good the amount targeted to be collected in the shape of CVT.
One proposal was that the rate of withholding tax ( W.T) on the brokers' commission income may be raised from 5 per cent to 10 per cent. But this generous offer, as reported in the press, was with the provisio that the proposed W.T should be in final settlement of the brokers' tax liability on this account.
What a wonderful suggestion? By paying 5 per cent extra, the seths wished to save about 25 per cent as the corporate tax rate would presently be 30 per cent.
The bourses have always been resisting the reforms as when proposed by the Government. One would recall that a few years back, Security and Exchange Commission of Pakistan proposed to introduce T+3 settlement methodology.
It was vehemently opposed by the bourses. But the Government did not yield to the pressure and it was implemented with the passage of time and is operating smoothly.
What benefits the nation is deriving from the bourses?. It is true that they are providing trading facilities in respect of the listed shares. But what is the share of common man in the daily turn-over. It must be hardly 5 per cent.
The bourses are "forced" to be believed as a barometer of the country's economy but there is no truth in the proposition.
They have rather become mere speculation shops serving the ends of the big belly seths comprising the brokers, market manipulators and the inside traders enabling them to make billions of rupees as tax- free income resulting in transfer of resources from the poor section of the population to richer sections of the society.
At per the diktat of our economic masters ie International Monetary Fund, the World Bank/ Asian Development Bank etc we had opened up our bourses to the outside world after mid-1990s.
What benefit the country did get out of it? If one takes the data he will find that there has been a net outgo in foreign exchange during the last 7-8 years.
The portfolio investment in the shares is of no economic benefit to the country as a whole as it is neither generating employment nor increasing production.
So when the country is now getting out of the clutches of our international economic masters named above by the close of the current calendar year, government should not worry much about the functioning of these speculation shops and it should also get itself rid of the "perception" that our bourses are number one in the world as they are not doing any service to the nation.
In the budget proposals for FY-05, Government has been pleased to extend the capital gain tax exemption on the shares upto June,2007.
On the one hand, the Government has been endeavouring to eliminate various tax exemptions at the diktat of the overseas economic masters and even the tax exemption on the income accruing on the National Savings instruments has been taken away by the present economic managers to the detriment of the interest of common man, the Government on the other hand is very sympathetic towards the interests of the big belly seths who are making billions of rupees through purchase / sale of the shares without contributing anything to the national ex-chequer in the shape of taxes and the capital gains tax exemption continues.
So the Government should not have succumbed to the pressures of the bourses' mafia and should not have revised the budget proposals.
If, as a result of Government's resisting the mafias' pressure, indices went/would go down temporarily, Government should not have worried for the simple reason that the bourses are not contributing any thing to the national economy.
The perception of markets going down would have proved to be a mere threat in the long run because the big belly seths' stakes are involved and consequently they will never allow the market to go down below a certain level as it will prove injurious to their own interests.
Unfortunately, the Finance Minister, while winding up the debate on the budget, partly ( read almost entirely) acceded to the request and slashed the quantum of CVT by 90 per cent from 0.1 per cent to 0.01 per cent which would now fetch merely Rs 150 million to the Government in place of Rs 1.5 billion.
This scribe is of the view that when the Government was so much sympathetic to the big belly seths (it is never been sympathetic to common man at all as would be seen from the levy of GST on the edible oil in the FY-05 budget), it should have altogether withdrawn the proposed tax. Considering the paltry yield and the expenses on its collection to be borne by the Government, it will prove to be an exercise in futility.
It may, however, add something to the tax collectors' pockets in the process. If the Government did not have the courage to resist the pressure of the bourses" lobby, there was hardly any rationale in indulging in this 'GUNAH-E-BE LAZZAT' and it should have fully appeased the big belly seths by withdrawing the CVT altogether.