May 28, 2003	Wednesday	Rabi-ul-Awwal 25,1424

ISLAMABAD, May 27: The Securities and Exchange Commission of Pakistan (SECP) has proposed to the federal government the abolition of double tax on dividend income with a view to removing a major impediment to investment.

While disclosing this to a group of newsmen here on Tuesday, SECP chairman Abdul Rehman Qureshi explained that a company pays dividend out of after-tax profit. It was, therefore, unreasonable to levy tax again on such dividend.

As the commission, besides regulating the capital market, also encourages and facilitates investment, Qureshi said the capital gains arising out investment in listed securities is currently exempt till June 2004. To enable investors to make long-term investment decisions, the SECP has recommended extension in the tax exemption period.

The commission recently amended the Companies Ordinance to allow firms owned by a single person to be registered as company. So far, about eight firms have availed themselves of this provision. As documentation in businesses was also government’s policy and as such companies constitute a considerable chunk of private sector, the commission has proposed that income tax at the rate of tax applicable to an individual be applied to “single member companies”.

To encourage companies to get listed on the stock exchange, the rate of tax on listed companies is less. The government is contemplating reduction in rate of tax on unlisted companies. The SECP has recommended that the tax rate for listed companies also be reduced to maintain the difference of rate between listed and unlisted companies.

The commission is encouraging the brokerage firms to convert into corporate brokerages as part of its efforts to develop the trading in equities along international standards. The SECP has, therefore, proposed that the capital gain arising out of such conversion be exempted from tax.

Similarly, the SECP chairman stated, exemption from tax had also been sought for contribution by employer and employee to Pension Fund Sections. Qureshi,

responding to questions, was confident that the current boom of stock market was sustainable as it was built on the sound reforms undertaken by the SECP and the macroeconomic stability achieved by the government.

The SECP had provided full facilities for establishment of new companies. These include one-window operation facility in each of the Company Registration Offices to incorporate a company within the maximum period of three days.

Consequently, during January-April period of 2003, as many as 536 new companies were incorporated. This denotes 82 per cent increase over the corresponding period of 1999. In order to obviate any delay, henceforth the prospectus would be approved at the whole commission’s level within three days of the receipt of complete offering documents.

The SECP chairman has constituted a committee to review the Code of Corporate Governance as previously implemented through listing regulations. The intention, he told newsmen, was to remove the inconsistencies between the Code of Corporate Governance as previously implemented through listing regulations and the relevant corporate laws.

The objective was to give full comfort to the companies and ensure that there is no over-regulation which may have negative impact on development of the corporate sector.

During the year 2002, he further observed, the KSE-100 Index rose by 112 per cent from 1,273 to 2,701 points and market capitalization increased by almost Rs300 billion to Rs595 billion.

During January-May 2003, the KSE-100 rose to 3,126, denoting an increase of 16 per cent. The Market capitalization increased from Rs595 billion to Rs689 billion, representing an increase of Rs94 billion. The same period saw an increase of daily turnover from 167 million shares in 2002 to more than 220 million in 2003. The actual daily settlement rate also increased from a mere 3 per cent in the past years to 10 per cent, average at Rs1.5 billion.

These achievements were made possible by a string of reforms carried out by the SECP such as T+3 settlement system etc.

As a result of these reforms, the stock exchanges in the country are, by and large, compliant with the 30 IOSCO principles of Securities Regulation that constitute the International Standards adopted by the Financial Stability Forum.

As part of the continuing reforms, the commission was about to set up Over the Counter Market and to phase out the Carry Over Market and build the capacity of the exchanges for effective market surveillance.

As regards future agenda of SECP, Qureshi said the commission would strive to enhance retail investor base, deepen the market by listing of mega issues such as Habib Bank Limited and OGDC, encourage the brokers to set up offices all over the country and develop mutual fund and pension fund industry.