ISLAMABAD: The Pakistan Stock Exchange (PSX) and the Pakistan Stock Brokers Association (PSBA) have expressed concerns over high capital market taxation and demanded its rationalisation in their budget proposals.

The PSX has said that the bourse has recently seen an upsurge in its performance and the market capitalisation has increased by almost Rs4 trillion in the outgoing fiscal year.

Foreign inflows amounting to $132 million were invested in the country through the stock market in the current fiscal year.

“The Ministry of Finance and the FBR must consider the proposals presented by PSX to ensure that the stock market continues to contribute towards economic growth, taxes, foreign investor inflows and documentation of the economy,” the PSX said.

Among the key demands by the PSX is aligning the rates of Capital Gains Tax (CGT) on the disposal of listed securities with the rates of CGT on the sale of immovable property. This would remove tax-driven distortions among different asset classes and create a level playing field.

The PSX suggested aligning CGT rates on all derivatives and future contracts traded on PSX with future commodity contracts on the Pakistan Mercantile Exchange (PMEX). It also rationalised the current dividend tax rate as corporate business profits are taxed twice and treated bonus shares as shareholder income.

The PSX urged the government to document the real estate sector and promote REITS structures, reinstate the exemption on inter-corporate dividends as until June 2020, under clause 103C of the Second Schedule, the dividend income derived by a company was exempt if the recipient of the dividend for the tax year was eligible for group relief.

Still, this clause was omitted by the Finance Act 2021.

The PSX asked for the reinstatement of the tax credit on investment in shares as the credits were essential for small savers, especially the salaried class, to promote long-term savings for their retirement and other life goals. These savings are channelled towards the stock market and government securities.

The PSBA asked the government to reduce the tax rate on brokerage and commission payments, which is 12 per cent. The association also asked the FBR to release their tax refunds at the earliest.

It expressed strong opposition over Sindh Sales Tax (SST) as it was double taxation for Lahore and Islamabad-based members, as they are not subject to the tax jurisdiction of the affected areas and were even unable to claim input tax adjustment.

To encourage listing on the stock exchange, the PSBA demanded that the tax rates for listed companies be 10pc lower than those of non-listed companies, as this would accelerate industrialisation and corporateisation in the country.

The PSBA also asked the government to rationalise the current tax rate on dividends to 10pc.

Published in Dawn, June 6th, 2024