KARACHI, Jan 31: The Chairman, Karachi Stock Exchange, Salim Chamdia made a strong plea on Thursday for restoration of tax exemption on bonus shares.

The appeal came a day after Engro Chemical skipped the expected bonus issue, citing recent levy of 10 per cent withholding tax as ‘unfortunate’.

In a press release issued by the KSE, Chamdia stated that the tax was discouraging companies to issue bonus shares, which in turn was retarding capital formation and investment. Bonus issues were in line with the government’s policy of self-reliance to promote capital growth instead of dependence on debts, he said.

He pointed out the practical difficulties being faced by listed companies and small investors as a result of treating bonus shares as income in the hands of recipients, subject to withholding tax at 10 per cent.

He said that the bonus issuing companies were facing difficulties in collecting tax from large number of shareholders, especially when the company may have no cash source to deduct tax on account of the shareholders. Moreover, he said, the new levy was unjustified and amounted to additional tax burden for small investors in a situation when they were not getting cash dividend through bonus issues.