ISLAMABAD: The Pakistan Stock Exchange (PSX) has requested the government to eliminate or reduce the Capital Gains Tax (CGT) for next 24 months.
The request has been made by the exchange in its proposals for the fiscal year 2020-21 budget.
PSX has proposed to the government to eliminate or reduce CGT for two years or at a minimum align rates of capital gains tax on the disposal of securities with other regional exchanges and OECD countries of the world.
In addition, the exchange asked the government to introduce a mechanism and regulatory structure for the launch of registered savings and investment accounts (RSIAs) to help channel savings towards productive investments.
RSIAs would help bring capital from a large undocumented sector into the formal economy. Further, it is also crucial that firm guarantees be offered and contributions be subject to full amnesty – aside from AML and Terrorist Financing issues due diligence.
The PSX has also proposed that the government should start funding its pension liabilities to avert a future pension crisis and encourage capital formation in Pakistan. An adequately funded pension scheme would offer old-age benefits to retired employees in public sector enterprises and government workers, without putting a burden on the annual budget.
Further, it is recommended that a certain percentage of the funded pension scheme be invested in the capital markets.
It is also recommended to align the rate of capital gains tax on the disposal of equities’ securities of non-residents with that of debt securities for non-resident companies having no permanent establishment in Pakistan.
It was proposed to allow carry forward of losses for six years rather than for three years as stated in the Proviso of Sub-Section 5 of Section 37A of the Income Tax Ordinance, 2001.
The exchange has also proposed that in order to facilitate the market for Exchange Traded Funds, the transfer of Portfolio (basket of securities) from Authorised Participants (AP) to ETF’s Account should not be treated as disposal and therefore holding period of ETF constitutes be carried forward to the ETF, upon conversion of Portfolio Deposit to ETF units, for the purpose of CGT calculation.
It was further proposed to reduce the rate of withholding tax on the gross income earned on the MF transactions from 10pc to 2.5pc.
Furthermore, it was also proposed that the government should introduce a mechanism to remove the double taxation of the company’s profit – once in the hands of the company and once in the hands of shareholders as dividends – so that the tax rate on dividends is on par with profit on debt.
The PSX also proposed to rationalise the current tax rate on dividends to make it equal to the tax rate on the profit of debt, provided that there should be no withholding tax on dividends up to Rs100,000 per annum. The applicable rate of tax on the dividend by a REIT scheme should be levied as it is applicable for mutual funds.
To encourage small and medium enterprises to get listed on the SME Board, it was proposed that the rate of tax for such listed SME companies be permanently lowered by giving tax credit of 50pc of tax payable.
It was further proposed that the Shariah compliance criteria under the income tax laws be modified to make it practically possible to meet it as it would help the promotion and development of Islamic capital markets by encouraging new listings of companies on PSX through mobilising resources towards faith-based investor savings.
PSX also proposed that the government must move away from short term measures and frequent changes to the tax treatment and adopt long term measures to promote savings and investment besides development of the capital market.