Multiple taxes hurting the stock market

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KARACHI: High-taxation rates are the scourge of the Pakistan Stock Exchange, as multiple taxes contributes to rates as high as 40 percent on companies compared to a global average of 22.96 percent.

A report in Dawn stated tax rates on corporate sector averages at 20.05 percent, whereas in Europe it stands at around 18.35 percent.

Aside from high corporate taxation, the capital gains tax (CGT) on the sale of securities is a major headache which forms a major obstacle in capital formation.

The high rate of CGT has contributed to luring away of foreigners from the country’s stock exchange since the major revision to CGT in July 2014.

It contributed to a net outflow of $254 million due to a sale of securities by foreigners against $256m of inflows for the year ended June 30th, 2014.

The Pakistan Stock Exchange (PSX) highlighted the CGT rate on stocks didn’t follow the taxation rates on other class of assets.

For example, it cited there was no CGT applicable on sale of immovable property provided the holding period was of three years or more.

PSX recommends CGT on four levels of holding periods, reducing it from 10 percent tax when the holding period was till one year and concluding at a zero-tax rate for holdings crossing 36 months (3 years).

Ex-Chairman of PSX, Arif Habib said these combinations of taxes on corporates was too high and noted sole owners pay meager taxes against what those are borne by genuine companies.

Also, Mr. Habib bemoaned the high cost of production, notwithstanding higher sale which left little for the bottom line.

Not only did this leave domestic products non-competitive against other nationals and especially in the export goods section.