The Federal Board of Revenue has partially accepted tax proposals of the Securities and Exchange Commission of Pakistan (SECP) to promote Voluntary Pension System (VPS) and other retirement schemes in the country. According to the Annual Report-2013 of the SECP, the commission has been endeavouring to bring parity among retirement schemes and a number of measures have been introduced to this effect in the tax regime governing the VPS and other retirement schemes.
However, certain aspects are yet to be reformed. In this regard, proposals were drafted in consultation with the industry and followed up with the FBR to secure equitable treatment for all retirement schemes. The proposals submitted for the purpose included: Firstly, the exemption from payment of tax from income received on periodic withdrawal of balance accumulated in a pension fund on attaining the age of retirement. The second proposal was that the tax neutral transferability of accumulated balance between VPS and other occupational retirement schemes.
The above said first proposal was approved by the government and the second proposal has been accepted partially. Under the revised tax law, tax-free withdrawal from the contributions made in the VPS out of provident fund has been permitted, thereby bringing parity in the tax treatment between provident fund and VPS. However, tax-free transfer of balance from gratuity and superannuation funds to VPS has not yet been acceded to. The efforts will continue to secure agreement of the government on remaining aspects so as to ensure equality among retirement schemes, promote funded pension schemes, encourage savings, reduce financial dependence of aged public on government and relieve government from the growing burden of arranging relief programmes.
The report added that the VPS remained on the growth trajectory during the year and the net assets of the private pension schemes grew by 76 percent from Rs 1.575 billion to Rs 2.776 billion. One new company, being eligible in terms of the prescribed criteria for pension fund management, was registered under the Voluntary Pension System Rules, 2005 (the 'VPS Rules'). The number of fund managers had increased to seven by the close of current financial year.