SECP proposes tax reforms for Capital market – Alfalah Securities Limited

Karachi: The Securities and Exchange Commission of Pakistan (SECP) has proposed several tax reforms to the Federal Board of Revenue (FBR) in order to revive the activity in capital markets while rationalizing the corporate tax rates to encourage listing.

According to Alfalah Securities Limited, SECP has suggested changes in the Capital Gain Tax (CGT) collection method which should be done on income-based rather than the existing transaction based fixed rate of CGT. SECP has proposed to collect CGT on traded stocks at the level of National Clearing House.

Secondly, SECP has proposed reduction in the corporate tax rate on listed companies making it lower than the private limited companies to encourage listing, since the listed corporations are more documented and make significant tax contributions. The listed companies are charged with a higher tax rate of 35% rate while non-listed companies enjoy better tax rate (35% for a normal private limited companies while 20% for small size company having turnover up to PKR 250 million, paid up capital of PKR 25 million & max. staff of 250 employees) with less regulatory requirements and documentations.

SECP has also proposed to raise the tax rates on the National Saving Schemes (NSS) to encourage investment in other productive sectors which would help to stimulate economic growth. Higher rates on NSS with low risk make other investment avenues like equities, mutual funds and term finance certificates comparatively less attractive thus, limiting the growth of securities market. SECP will submit a detailed proposal to FBR for consideration in the budget by February 2011. Alfalah Securities Limited believes the said changes would not only meet the purpose of FBR of improving documentation for tax collection but also benefit the growth of capital markets and revival of investors’ confidence. However, all of this, if materializes, would happen in June 2012 at the time of presentation of budget.