Sale of securities: stockbrokers seek to reduce the CGT – Markets

ISLAMABAD: Stockbrokers on Wednesday submitted budget proposals for 2022-23 to Finance Minister Shaukat Tarin including a reduction in capital gains tax (CGT) on the sale of securities to encourage investment in long term on the stock market.

Tarin held a meeting with a delegation from the Securities Dealers Association of Pakistan led by its Vice President Zahid Latif Khan at the Finance Division here on Wednesday.

Tarin has been advised that the current rate of capital gains tax at 12.5% ​​is exorbitant and amounts to discouraging investment in the capital market. In order to encourage stock market investment for a longer period, there should be no tax when the holding period is three years or more.

In this context, revised slabs of the CGT have been proposed on the transfer of titles for 2022-23.

Capital gains tax under Section 37A applicable to filers may be made applicable to non-resident Pakistanis through amendments to the Income Tax Ordinance 2001 to encourage remittances of overseas funds, added the proposal.

The delegation briefed the Minister of Finance on some issues and challenges hampering the growth of the capital market in Pakistan and requested support from the government to address their issues.

They asked for tax incentives on capital gains and stock market investments.

Tarin said the government encourages investment and the listing of entities on stock exchanges.

He further assured the delegation of his support to solve their problems and for the growth of the capital market in Pakistan.

According to the budget proposals for the next financial year, the document contains tax recommendations as well as sectoral proposals for the government to consider and to help it prepare a budget favorable to the capital market, businesses and investors.

The intention is to ask to provide incentives for capital formation and remove disincentives which is more essential for Pakistan Corporate to compete effectively in the world.

The capital market plays a vital role in an economy.

There can be no economically prosperous Pakistan without a vibrant capital market.

These proposals also focus on certain impediments to market growth and anomalies affecting stock market depth.

The fundamental principles of the proposals are to promote investment culture, encourage investors and attract direct investors to the capital market.

The association proposed that the dividend be taken from the taxable income of the company, the tax on the dividend being equivalent to a triple taxation of the same income.

The current tax rate on dividends is confiscatory in nature and has discouraged investment in stocks, which has slowed down the process of industrialization.

Reducing the tax rate would generate more equity investment and therefore more revenue for the federal government.

The government should introduce a mechanism to remove the triple taxation of business profits; (a) Once in the hands of the company; (b) Once in the hands of the sponsors; and (c) once in the hands of shareholders in the form of dividends.

The association has proposed that the tax rate be 25% in the case of a person receiving a dividend from a corporation where no tax payable by that corporation due to the exemption of income or the carry forward of losses business or the request for the tax credit, therefore 50% for non-declarants, which is higher than the normal tax regime of 29%. It is therefore proposed that the tax rate which is exorbitant for such a category can be reduced.

In Pakistan, the percentage of investment and savings in relation to GDP is relatively very low.

The number of current UINs clearly reflects the fact that a sweetener is proposed to increase the same. In order to incentivize individuals to save/invest in stock markets, a tax exemption threshold may please be introduced. It is strongly recommended that the new threshold be offered in a tax year only to individuals, he added.

Copyright Business Recorder, 2022

Dolores W. Simon