KARACHI: Finance Minister Miftah Ismail promised that he would hold a meeting “immediately” with the relevant stakeholders to consider increasing the dividends of profitable state-owned enterprises (SOEs).

A press release issued by the Pakistan Stock Exchange (PSX) on Tuesday said the bourse’s management and brokers who met the finance minister in the preceding week demanded that the payout of profitable SOEs be increased immediately.

“While some of the SOEs are extremely profitable, their payout ratio is a meagre 18 per cent,” the press release said. The meeting participants urged the finance minister that this should be raised to 50pc. Given the imminent board meetings, there was an urgency for guidance for the SOEs to declare healthy dividends, which would result in dividend income and taxation revenue for the government and give it fiscal space to reduce the circular debt as well, it said.

The participants also pointed out that the market valuations presented compelling opportunities for entities like State Life Insurance Corporation and the Employees’ Old-Age Benefits Institution to invest in listed companies for the benefit of their policyholders and pensioners.

Stakeholders term capital gains tax unjust

The participants emphasised that taxation measures should be equitable. Movements in the rupee-dollar exchange rate have been too volatile, and changes to this effect should be gradual, they said. With regard to interest rates, it was pointed out that these are negative in almost all countries, and the same fact must be taken into account in the national context.

The finance minister said macroeconomic stability was forthcoming with the International Monetary Fund (IMF) programme resuming before the end of August. “The balance-of-payments position is now well under control. With increased hydropower, lower energy demand and lower oil prices, Pakistan may even have a balance-of-payments surplus in coming months,” he said.

With regard to tax measures, the finance minister stated that the 10pc super tax is imposed for one year only while alternative revenue streams are being developed. Advances-to-deposits ratio-linked tax on banks will not be imposed retrospectively, and tax revenues from the retail sector are expected to be significantly higher than last year’s, he added.

The participants emphasised that the two biggest obstacles to the growth of capital markets are tax incentives given to other asset classes and know-your-customer (KYC) requirements in the stock market, which are not consistently applied to the other asset classes. These obstacles are resulting in an anti-money laundering and tax-driven distortion among asset classes, which is detrimental to the efficient allocation of scarce resources.

The meeting participants pointed out that even though the stock market is one of the most documented sectors of the economy, the income of listed companies is subject to double taxation — at the company level and later at the dividend-distribution level, whereas unincorporated businesses are subject to substantially lower taxes.

A key concern expressed at the meeting was the treatment of capital gains tax. The Finance Bill 2022 addressed this issue through the introduction of reduced rates based on the holding period. However, the final amended document again created a tax disparity between securities and immovable properties. The participants termed it unfair and against the stated policy of the government.

They emphasised that SOEs like SLIC and development finance institutions like Pak Kuwait Investment Company, as well as public-private partnerships and China-Pakistan Economic Corridor projects, be encouraged to list and raise debt in the capital market.

Published in Dawn, August 11th, 2022

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