Chairman Securities and Exchange Commission of Pakistan, Muhammad Ali informs a Business Recorder team comprising Islamabad Resident Editor Anjum Ibrahim and staff reporters Sohail Sarfraz and Wasim Iqbal that tax proposals for budget (2011-2012) will focus on new incentives to encourage listing of new companies and sector-specific concessions to mutual funds, non-banking financial companies and corporate sector.
Tax proposals would also cover measures for the development of the capital market. However, the commission would not draft any proposals on capital gains tax and withholding tax on stock brokers. According to him criminal investigation has been launched against those responsible for stock market crash of 2008. The following are excerpts from the interview:
Business Recorder: What is your vision as chairman?
Muhammad Ali: To develop and regulate debt capital market in the country. The Bonds Automated Trading Systems (BATS) has already been introduced at the stock exchanges in collaboration with stakeholders. If it starts functioning on a larger canvas, the corporate sector may be able to borrow at 8-9 percent mark up. We are working to make BATS more functional by incorporating certain additions. This would enable anyone to trade online from anywhere in the world at the same price.
To restore the confidence of debt capital market, it is essential that federal government borrows from the capital market. We are working on these lines and have engaged in consultation with federal government and State Bank of Pakistan. At present the government and the corporate sector are borrowing from commercial banks at 14-15 percent mark ups.
BR: As chairman what is your focus?
MA: As chairman I have identified 5-6 areas. But major thrust is to strengthen mutual funds regulation after the industry has gained maturity and players are financially more stable in this sector. Strengthening national commodity exchange is a second challenge. The National Commodities Exchange Limited was established with the intention of regulating, carrying out trade of contracts pertaining to futures commodity in the domestic commodity markets as well as the global commodity markets world-wide.
BR: Do you support a capital gains tax (CGT)? Would SECP support relaxing CGT rules imposed by FBR that require an NOC?
MA: We have constituted a committee of stock exchanges. They will move their proposals on capital gains tax or withholding taxes to stock brokers. We will not submit any amendments in this regard. A committee of the Karachi Stock Exchange (KSE) is directly interacting with the FBR on the issue of CGT. The reasonability of co-ordination on tax matters has been given to the KSE committee.
BR: What kind of major changes in regulations are expected?
MA: The rules for convertible bonds and exchangeable bonds would be issued in the next few weeks. Presently we do not have rules for convertible bonds and exchangeable bonds. This is for the first time that such rules would be issued.
BR: How is our insurance sector performing?
MA: Insurance penetration in the country is very small. The premium of various types of insurance like crop insurance, medical insurance are too high for the common man.
We, in collaboration with foreign experts, have been working to introduce micro-insurance in the country. The reason we opted for foreign experts is because there are no local experts in the field and these foreign experts are now training of our staff on regulating the insurance sector.
The enhancement of regulatory framework for Takaful Insurance is a major step to improve the performance of the insurance sector. We are also very receptive to new products like we receive in case of developing mutual funds sector. We are in the process of allowing conventional insurance companies to offer Takaful Insurance.
BR: Is the Commission still engaged in bringing those complicit in the 2008 stock market crash to justice?
MA: In order to address outstanding investor complaints pertaining to the alleged non-transfer of shares and non-payment of funds relating to market crisis of 2008, show cause notices were issued and enquiries were conducted against five suspended brokerage houses of Karachi Stock Exchange by the SECP. The criminal complaints have been filed in the session court against three brokerage houses whereas criminal complaints in the matter of remaining two brokers are in the process of being filed.
Some brokers went bankrupt or left the country, but criminal proceedings have been started against those brokers, who ran away with the investors'''' money.
Before this, the market crisis of 2005 was investigated by forensic investigators. Based on the findings of the forensic report, show cause notices were issued to 69 brokers of Karachi Stock Exchange. Subsequently, hearings were held and warning letters were issued by the SECP to these brokers.
BR: Did government seek your advice in filling the vacant post of Commissioners?
MA: Only in a recommendatory capacity - the decision to appoint rests with the Ministry of Finance.
BR: What are some of your key proposals for the annual budget?
MA: We will float proposals linked to those sectors regulated by the Commission. Primarily, we would recommend some new provisions for development of mutual funds. In order to give leverage to corporate sector in the stock market, some incentives will be suggested in next budget. The tax proposals would mainly focus on encouraging listing of companies on the stock exchanges in Pakistan and development of the mutual funds industry.
BR: Why is the FBR not consulting with SECP on tax related matters of companies?
MA: The process of consultancy between commission and FBR is ongoing. We are in the process of signing an MOU to enhance our co-ordination.
BR: Do you have any differences with Competition Commission of Pakistan over the payment of three percent of annual collected fee/charges?
MA: We will resolve this issue. All regulators charge a fee for services rendered to their clients.