As share buying seems the lone profitable option now for the savers, and that practice gets more popular, the people want the number of shares available to them to be increased radically.
The Karachi Stock Exchange (KSE) supports that demand of the people even while it says the market capitalisation of the share has increased from $5 billion in 2002 to $22.476 billion in the beginning of April or over one trillion rupees. The number of shares transacted on last Tuesday alone was 521 million when the KSE index rose above 5,000 again.
The last peak was 5,660 recently, while the previous peak a decade ago was 2661 on March 3, 1994, after which the market collapsed. But the over trillion rupee market capitalization of the shares represents more enhanced prices of the shares than a quantitative increase in the number of shares as since 1994 the quantitative increase in the number of shares has not been very large.
This is a period in which the major investors have sought to raise larger capital through Term Finance Certificates (TFC) and larger bank loans. Instead of going through the hassle of the stock exchanges.
But the Privatization Commission has tried to fill the void partially by selling the shares of public sector units beginning with the Pakistan Telecommunications Corporation shares in 1994 earlier and now by selling the shares of the Oil and Gas Development Corporation and the Sui Southern Corporation while the National Bank of Pakistan and the PICIC Commercial Bank sold their shares at attractive prices.
And now the Privatization Commission (PC) has decided to make the minimum number of shares of a unit it would sell to 500 instead of 1,000 which restricted the number of people who can buy their shares.
If helping the people to buy more and more shares was its objective it should not have in the first place used the minimum of its saleable shares at 1,000. And now it is correcting that mistake by reducing the basic number to 500 which should enable far more people buy the shares.
Now there is talk of cross-border listing of shares of Pakistan and India. The big fish in the Karachi Stock Exchange are interested in buying shares of some good Indian companies, like the exceedingly lucrative Reliance Group shares. But political normality has to return and people have to find it easy to travel between the two countries before such cross-border listing of shares becomes a real success.
The KSE in its budget memorandum to the finance minister says the number of shares available to the public can be increased if the number of companies listed on the stock exchanges of Pakistan is increased.
And that can be done by offering real incentives to the companies to get themselves listed on the exchanges. Its pragmatic budget memorandum says that until June 2002, there was a tax relief of ten per cent for the listed companies over the non-listed companies which had to pay 45 per cent corporate tax.
The listed companies paid 35 per cent tax, and got a real incentive for being listed with the stock exchanges. The government then decided to lower the tax on non-listed companies by two per cent each year and bring the tax on non-listed companies at par with the listed by July 2006.
After that the non-listed companies found no incentive to get listed and go through various procedures prescribed by the stock exchanges and the Securities and Exchange Commission of Pakistan (SECP).
And they found listing even less essential when they could raise the money they needed through banks according to their track-record with them and supplement that through the TFC.
So now after some of the TFC had been paid off there are 33 TFCs listed with the with many rich companies having more than one TFC, whether they be the Dewan family or the Engro Chemicals. Private sector loans by banks have also doubled over last year's loans and are double the State Bank target to encourage faster economic growth.
The KSE now argues that if the 10 per cent difference in tax between the listed and non-listed companies cannot be restored the gap should be reduced to at least five per cent.
There is strong support for this demand from the Securities and Exchange Commission as well to enlarge the share holding by the common-man or the middle class citizens with a saving problem.
The KSE also wants that dividend in the hands of the share-holders should not be subjected to the 10 per cent withholding tax as that amounts to double taxation. That is in addition to the Zakat which a great many people are still paying.
The KSE argues that after the profits of the company had been taxed at 35 per cent, the net profit in the hands of the share-holders should not be taxed again. This is an old demand of the stock exchanges, but successive governments have shown no interest in doing away with the withholding tax.
And now when more and more companies are paying dividends, and some of them very high dividends, the government may be too reluctant to forgo this tax or even reduce that to 5 per cent.
The KSE also wants the exemption from Capital Gains Tax to be extended to five years instead of for one or two years from time to time. And now when many companies are paying dividends, and some very good dividends exceeding 100 per cent, the government may be tempted to come up with capital gains tax instead of giving the share holders a five-year tax holiday in this areas.
The KSE also wants the insurance companies in Pakistan to be treated at par with other companies in respect of capital gains tax instead of they being discriminated against and singly subjected to capital gains tax. In such an environment few companies are coming forward to get listed on the stock exchanges, save a small number of companies in the information technology sector.
Added incentive to the companies not to get listed is the very low interest rate prevailing and the fact that banks with large surplus funds are looking for good borrowers.
And the TFCs are there with their fixed returns and few of the hassles of the share market. They also take note of the fact that the largest banks in the world, the City Group and the Hong Kong and Shanghai Banking Corporation (HSBC) are private limited companies and so are many of the top British companies.
In Britain, Margaret Thatcher as the truculent prime minister earlier spoke of a property owner democracy and later of a share holders' democracy.
And through her privatization drive she was able to raise the number of share holders in Britain to above 10 per cent of the people, which of course is far less than America's share-owning public.
The question which the government should be asking is whether it should help make our primitive capitalism into a modern capitalist order and enable a large number of the people have a piece of the corporate pie? Whether it should enable more of the people to own shares and benefit by the corporate profits or confine that to a big few.
The government had been arguing that though they are public limited companies and listed on the exchanges most of the shares are held or controlled by the sponsors of companies and too few shares are outside their orbit.
And that is true as unlike in modern countries the sponsors of listed companies have not only a majority of the shares but also an overwhelming number of shares with too few shares outside their control.
Hence giving them a large tax benefit for getting their companies listed is only more money into the pockets of the sponsors. Even in India the sponsors of companies do not often have majority of shares.
Hence they are amenable to share-holders pressure and be on the right path. In the US and Britain, too, the share holders are asserting themselves visa visa the chief executive as the Shell or the Disney share-holders did against their chief executives.
The SECP, and the stock exchanges, particularly the managing director of KSE Moin Fudda, are exerting themselves to protect the rights of the minority share holders but with limited success against the dominant big fish.
Anyway investment companies and security analysts are exposing more and more of the irregularities of the stock exchanges and they are doing a very useful job at a time when the banks are discouraging small savers and penalising the smaller depositors, leaving them with few dependable options, save the enigmatic stock exchanges with their soaring index and greater promise.