The federal government is likely to announce tax credit for private funds in next fiscal year budget 2022-23.
Sources said that Securities Exchange Commission of Pakistan in its budget proposal asked the federal government for tax credit for private funds.
The rationale of this proposal is the promotion of investment by Private Equity (PE) and Venture Capital (VC) funds to ignite start-up investment and facilitate restructuring of sub-optimally performing companies.
In Pakistan for both VC and PE only two levels (Levels 2 and 3) exemptions were available until the Finance Act 2021, when they were both withdrawn resulting in unjustified taxation on same source of income.
The tax credit will encourage greater participation in the private funds market and increase the size and depth of our capital markets and increase overall investment in the economy.
In addition, SECP in its budget proposals asked the government to give tax amnesty on GEM board and listing under the direct listing method.
Such tax incentive would attract SMEs to raise funds from GEM board besides help in increase in direct listing would result in increased trading activities, thereby impacting tax revenue.
Moreover, it would enhance investment options for both local and foreign investors, sources added.
Sources also said that it would also facilitate the Growth Companies (SMEs, Startups) to get themselves listed on the GEM board and it would encourage listing through the Direct Listing method besides positively enhance the tax revenue over medium to long term.
The SECP has also proposed reinstatement of reduced tax rate of capital gains tax of 10% on sale of private company shares to a Private Fund
In countries like Indonesia, start-up/venture capital companies which attract private fund investment are exempt even from corporate tax.
Restoration of Tax Credit on enlistment
Until 2021, tax credit was available to newly listed companies under section 65 C of the ITO. However, the same has been omitted / revoked by the Finance Act, 2021 effective month 2021.
Restoration of tax credit would attract companies to get listed at PSX. Increase listing would result in increased trading activities, thereby impacting tax revenue. Moreover, it would enhance investment options for both local and foreign investors
