PSX demands aligning capital gains tax for stocks, real estate

KARACHI: The chairman of Pakistan Stock Exchange (PSX) on Saturday presented proposals to Federal Finance Minister Asad Umar to align the capital gains tax between stocks and real estate sector to ensure a level playing field.

PSX Chairman Sulaiman Mehdi, during a meeting with the federal minister on Saturday, also proposed to allow carry-over of capital losses for up to 3 years, reintroduce the concept of holding companies tax structure for inter corporate dividends to avoid double taxation, and

reduce the advance tax rate from 0.02 percent to 0.01 percent on stock exchange transactions.

Meeting participants also proposed to remove the embargo on foreign holdings of PSX shares.

Other proposals put forth included setting up a fund to divest government holdings in state owned enterprises, which would be available to the Pakistani diaspora and foreign investors. On the debt side the concept of issuing US dollar linked rupee bonds for domestic investors was also appreciated.

Minister Asad Umar agreed to sympathetically consider the proposals.

He said the stock market had witnessed an incredible growth in the recent years, and a performing equity market had a very positive impact on the economy.

He said the listing process would be made easy and government would consider rationalising capital gains tax, while an automated system like PSX would be formed to manage capital gains tax on the real estate sector.

Umar expressed his optimism and offered praise to PSX Board and Management, and Securities and Exchange Commission of Pakistan (SECP) for introducing reforms in line with best international practices that have ensured that the market could now withstand significant volatility – as seen since May to December 2017 – without any disruption.

The SECP agreed to consider several initiatives proposed during the meeting, including a review of current restrictions on Negotiated Deals Market between clients of the same broker, increasing the number of scrips eligible as well as position limits for futures market, reviewing buy back regulations to make it easier for companies and introducing more flexibility for Employee Contributory Funds to invest in the stock market.

To attract more companies to list on PSX, SECP Acting Chairman Tahir Mahmood also ensured SECP’s commitment towards reviewing the regulatory framework for listed companies in consultation with the PSX.

The PSX chairman said the Pakistani equity market offered attractive valuations compared with regional peers, and with currency depreciation the market was set to attract foreign investments.

“Forward price to earnings multiples of 7.6x compared to average regional multiple of 13.7x and dividend yield of 6.9 percent compared to average regional yield of 3.6 percent presents a good opportunity for investors,” he added.

Similarly, rupee devaluation of 19 percent in 2018, was part of a global trend that included 93 percent devaluation in Argentina, 50 percent in Turkey and 15 percent in India.

“This realignment of our currency sets the stage for increased foreign investment in Pakistan. In the past, our market has shown the ability to attract significant foreign interest, including $1 billion in two secondary public offerings of UBL and HBL in 2014-15,” he added.

The chairman, the MD, PSX board members and other participants thanked the minister for his support and expressed great optimism and full confidence in his leadership to lead Pakistan through its current challenges.

It was the ministers first visit to the PSX after taking office.

The meeting was led by PSX Chairman Sulaiman Mehdi, and was attended by SECP Acting Chairman Tahir Mehmood, SMD Commissioner Shauzaib Ali, PSX Managing Director Richard Morin, Members of the Board of PSX, and leading capital market participants.