PSX urges Ministry, FBR to review proposed tax amendments

Observer Report

The Management and the Board of Directors of Pakistan Stock Exchange (PSX) has reviewed the proposed tax amendments reported in the media with concern and strongly recommends a review of the same by the Ministry of Finance, FBR and relevant authorities.

The PSX Board would like to delineate the following with regard to the proposed amendments.

After a long hiatus, IPOs have recently restarted and there is a robust pipeline of companies waiting to raise capital from the stock market to expand their operations. Capital markets in Pakistan are probably the most documented sector of the economy.

When a company gets listed, not just that company, but its supply chain and all its shareholders also become documented and come into the tax net.

In fact, all activities related to listed companies’ vis a vis the capital market are documented and automated, to the extent that even capital gains tax is deducted at source by NCCPL and submitted to the FBR.

Until June 2002, there was a tax differential of 10% between public/ listed companies and private/ unlisted companies, who were taxed at the rate of 35% and 45% respectively.

Subsequently this was changed and new listed companies are now given a tax credit only for four years, with the tax credit being 20% for the first two years and 10% for the next two years.

The tax incentive for new listings is a very small enticement with no significant revenue impact.

Presently, only 10 listed companies are availing this benefit, which in our estimate based on their latest audited financial statements, comes to a total tax credit of approximately Rs 175 million per annum.

Out of these 10 companies, four companies are in their fourth or last year of availing this benefit and four companies have recently been listed in the current financial year. This tax incentive greatly encourages new companies to come forth and get listed.

This has a significant impact on increasing the documentation and tax base of Pakistan and hence on tax revenue.