PSX demands end to tax policy distortion

KARACHI: Pakistan Stock Exchange (PSX) chief executive Farrukh H. Khan said on Tuesday the government should do away with the distortion in its tax policy that currently favours certain asset classes against others.

Speaking at a press conference, Mr Khan called for aligning the tax rates for the equity market with those on real estate and agriculture, sectors that’ve traditionally remained undertaxed for decades.

“We don’t want any tax relief for the stock market. All we demand is that the government ensure a level playing field that treats all asset classes equally,” he said while briefing journalists on the exchange’s tax proposals for 2023-24.

By his own reckoning, the stock market has been “subdued” and valuation are “very low” for a host of reasons. The benchmark index of the PSX has barely moved since the beginning of 2022-23 – a phenomenon that the PSX CEO attributed partly to overall macroeconomic indicators. For example, interest rates are at an all-time high, which means mutual fund managers have diverted more than 80 per cent of their assets under management to risk-free, fixed-income securities, he said.

Mr Khan expressed hope that the coming months will bring investors back to the equity market. “For the first time, UINs have crossed the 300,000 mark,” he said while referring to the unique identification number that every investor receives to ensure all trades and transactions remain traceable.

“We’ve processed three to four IPOs and sent these forward to the Securities and Exchange Commission of Pakistan for approval,” he noted while referring to the public listings that’ve become increasingly rare amid poor valuations and lack of enthusiasm among investors.

Mr Khan also demanded that the government should exempt income derived from foreign investments from tax in order to attract funds from overseas investors into the capital market.

He asked the government to remove the flat capital gains tax (CGT) rate of 12.5pc applicable on the disposal of securities acquired on or before June 30, 2022. Meanwhile, the government should fix the CGT rate for all derivatives and future contracts traded on the stock exchange at 5pc, he added.

He said the corporate tax rate of 29pc should be lower for listed companies in order to nudge the unlisted firms towards going public for promoting the documentation of the economy. He proposed a credit of 20pc of tax payable for those companies that meet the prescribed requirements, including a minimum free float of 25pc.

The PSX CEO also demanded that the exemption on inter-corporate dividends between companies eligible for group taxation be restored in the 2023-24 budget.

Besides, the PSX has asked the government to lower the tax rate for listed SMEs by giving a credit of 50pc of the tax payable for three to four years of listing and subsequently 20pc of the tax payable.

The PSX has also demanded that the regulatory structure for the launch of registered savings and investment accounts (RSIAs), as well as individual savings accounts (ISAs), be introduced through the stock exchange to help channel savings towards productive investments.

“RSIAs and ISAs will help bring capital from both unproductive and the large undocumented sectors into the formal, productive sectors of the economy. Being tax-free, these schemes will induce and promote national savings.”