Is the government interested in promoting black money or force decent taxpaying investors to switch to real estate or transfer their funds abroad like most of the ruling elite? The question was raised by stockbrokers while reacting to what they said highly 'disappointing' Federal Budget 2015-16. "None of the proposals of the Karachi Stock Exchange (KSE) has been considered," said Basharat Ullah Khan, general secretary KSE Stock Brokers Association.
As per practice, he said, the Finance Minister had punished the tax-compliant investors by further burdening them with extra taxes. The government had not given up tinkering with Capital Gain Tax (CGT) on securities. The rate of CGT should not be more than five percent for 10 years to enliven investor confidence.
Most of investors, Khan said, did not hold their investment on a long-term basis due to weaker holding power and abrupt changes in government policies. Since majority of investors hold investments for less than a year, they would generate more volumes and hence more revenue if the tax rate for one year is five percent. Besides like other areas, Section 37 A (5) of I.T. Ordinance be amended to allow investors to carry forward losses in the next four years (taxable period).
Additionally, the broker said, the new budget also raised tax on dividends. "Dividend tax is double taxation as the dividend is distributed out of income of the companies on which they have already paid their taxes," he added. Moreover, he said, discrimination had been made in tax slab on fixed and risk-free income by taxing it at 10 percent whereas risk bearing investment is targeted with a higher slab.
Tax on bonus shares, which is not an income, had been retained. A close look at budget proposals indicated that rather than increasing the tax base, the government had increased the tax rates on "captive tax' payers like corporate and salaried class, Khan said.
"The Finance Minister knows that all investors at the stock exchanges are fully documented and can trade only on the basis of UIN (Unique Identification Number generated by NCCPL), which is based on CNIC of each investor," he said. The equity investors, the general secretary said, were presently required to pay SECP charges, KSE charges, CDC charges, NCCPL charges, Sindh Revenue Board (Excise Duty), CVT, commission, CGT and double taxation on dividend incomes.
"As against this documented and tax compliant sector, the government rewarded real estate, a depository of black money, by making it tax-free," the broker said. Khan termed patently illegal the trick of taxing companies having more than 100 percent reserves of their paid-up capital. The so-called tax is investors' money, he added. If at all, the entire 'tax' be passed on as dividend to the shareholders, preferably other than sponsors, he demanded.
The logical thing was to accept KSE's proposal of distribution of 50 percent cash dividend out of current year's profits if the reserves exceeded 100 percent of the paid-up capital, he said. Another anomalous clause is imposition of 0.6 percent tax on non-filers on all banking transactions. "How is the government going to determine non-filers when even filers are sometimes penalised by deduction of 15 percent tax on their dividend?"
This is due to sheer incompetence of registrars of companies and incorrect and outdated taxpayers list by the FBR, the general secretary claimed. How the banks were going to determine the non-filers amongst widows, pensioners or low-paid salaried persons, he wondered. These kinds of measures, the broker representative warned, would force people to deal in cash, preferably foreign currencies, rather than using banking channels.
"The entire budget needs serious reviews to make it sensible and practical," he viewed and offered the association's help if the finance minister had the "sagacity to do so".