The government on Monday dropped the strongest of hints so far that it might end tax immunity on capital earnings through stock exchanges from next fiscal year. Finance Minister Ishaq Dar told a Senate standing committee that continuing with exemptions would not be possible any more.
FINANCE MINISTER ISHAQ DAR TOLD A SENATE STANDING COMMITTEE THAT CONTINUING WITH EXEMPTIONS WOULD NOT BE POSSIBLE ANY MORE: He, however, took a cautious stance and did not outrightly say that the government had firm plans to impose capital gain tax (CGT). "We need to collect more revenue...we will have to broaden the tax base by bringing more sectors into the net," he said.
There has, of late, been a lot of criticism on the policy of previous regimes exempting rich stock brokers from paying tax on what they earn through trading in the capital markets. The exemption on capital gain is applicable on stock exchanges for the last many years.
Ishaq said the government wanted to raise, by at least four to five percent, the ratio of tax collection to Gross National Product (GDP) over the next couple of year.
Revenue collection is about 9 percent of GDP at the moment, and officials are eyeing to double it in a decade. Experts believe that it would not be possible without taxing the stock exchanges earnings and agriculture sector, another exempted area. Members of the committee suggested that CGT must come into force immediately. It, however, formed a three-member subcommittee to hold negotiations with stock brokers before giving its final recommendations to the government over the issue.
Representatives of Karachi and Islamabad stock exchanges contested the proposal, arguing that it would suffocate the inflow of both direct and portfolio investment. They sought exemption for another five years with additional demand to do away with overlapping taxation.
ECONOMY IN A SHAMBLES: Dar told the committee that the economy was under immense pressure due to previous government''''s policy of giving subsidies on various products and utilities. The worse part, he said, was that these subsidies were announced but were either not paid at all or paid partially, making it difficult for the new government to strike a balance now.
"What has been given to us is almost a crashed economy...we have to rebuild it now," he told the committee. Abrupt rise in oil prices further aggravated the economic situation, he added.
CONVENTIONAL MODEL: The minister said that the government was planning to focus more on agriculture sector, instead of services, giving the idea that the new regime would follow a conventional economic model.
Experts believe it is more a compulsion than a desire because of the non-availability of power and other essentials to take an aggressive stance. "It''''s going to be like a fresh start by the primitive sector historically," one of them opined, referring to agriculture.