Securities and Exchange Commission of Pakistan (SECP) Chairman Muhammad Ali on Tuesday said that only 2 percent of all businesses are registered as corporate entities in Pakistan due to discriminatory taxation structure, which favours sole proprietorships and partnership concerns.
Giving reasons for low registration of corporate entities with the SECP, Muhammad Ali highlighted in the SECP's annual report-2012 that heavy taxation of registered companies is one of the reasons for low registration in the corporate sector. He said that only 2 percent of all businesses are registered as corporate entities in Pakistan. This is because of our tax structure, which is still tilted in favour of sole proprietorships and partnership concerns compared to corporate entities. The registered companies with statutory and audit obligations are required to pay higher rates of tax, which is not conducive to corporatisation. The country cannot achieve higher levels of documentation and governance without corporatisation, which is not possible without first fixing the anomaly in the taxation structure.
The SECP is enhancing its enforcement capacity and starting from July 2013 the commission plan to conduct annual onsite inspections and quarterly offsite monitoring of all licensed entities, including capital market infrastructure institutions, stock and commodities brokers, and NBF and insurance companies. This will reduce the incidence of corporate and securities market frauds and malpractices, Muhammad Ali said.
For the development of the corporate sector in Pakistan, the SECP is separating the compliance and facilitation functions as these require different skills and mindset. For this purpose, a registrars' conference was held to discuss the way forward for the corporate registry function of the SECP. The major objectives were to explore how to have a customer-oriented/facilitative mindset and conduct a strength, weaknesses, opportunities and threats (SWOT) analysis to bring about desired changes. The SECP has identified top 5 customer service areas and the critical success factors, barriers and action plans for the SECP to achieve these objectives. In order to achieve these objectives, and for the implementation of the action plans, teams with specific mandates have already started work on implementing the action plan, Chairman SECP said.
For public sector enterprises, the SECP is working on introducing rules for their better governance to ensure that the drain on the national exchequer is minimised and to further improve and raise the standards of corporate governance.
Furthermore, the SECP is considering a voluntary code for private and family owned enterprises to promote a culture of responsibility, ethics and sound management. The Commission is also actively engaged in establishing an Audit Oversight Board for the independent supervision of the auditing profession, which will bring in greater transparency.
About the insurance sector, Chairman SECP said that the commission had notified a new solvency regime for insurers in 2012, which rationalises the admissibility limits for certain assets, enhances the minimum solvency requirement for life and non-life insurers and enhances the statutory fund requirement by introducing a risk-based margin above the current policyholders' liability. Furthermore, the Takaful window operations, for traditional insurance companies to be able to offer Shariah-compliant products and services, have already been introduced while the SECP is working to introduce new insurance products such as the terrorism insurance pool, health, livestock, crop, war and natural catastrophe insurance. A Shariah Advisory Board comprising of eminent Islamic scholars and market professionals has been approved by the Commission to ensure that all products and services offered are in conformity with Islamic principles. Realising the needs of the lower income segments of the economy, the SECP, in collaboration with the World Bank and the FIRST Initiative, has prepared and published a diagnostic report on the state of microinsurance in Pakistan.
The draft regulations are being developed through focus group discussions by involving various stakeholders across Pakistan. With regard to revamping the insurance sector framework, in May 2012 the SECP constituted an insurance industry reform committee which is working on five distinct areas, ie regulatory reforms, market development, operational challenges, education and awareness, and technological development.
They are presently working on identifying factors which have hampered the growth and development of the insurance industry in Pakistan, and give recommendations on how to overcome these hurdles. The Commission is focusing on strengthening areas such as modern risk-based supervisory regime, issues related to new distribution channels, etc, as well as seeking delegation of necessary punitive and civil prosecution powers, in line with the International Association of Insurance Supervisors (IAIS) principles and best international practices, Muhammad Ali added.