PSX urges govt to implement reforms to strengthen capital markets

KARACHI: The Pakistan Stock Exchange (PSX) on Tuesday urged the government to implement reforms to strengthen the country's capital markets, saying such measures would help attract more companies and investors.

Farrukh H Khan, CEO/MD of the PSX, shared the proposals with the media, emphasised the need for structural reforms to address prevailing imbalances in the country's economy.

Khan said a robust capital market could play a significant role in achieving economic and social objectives, such as expanding the taxpayer base, increasing savings and investment rates, and reducing wealth inequality.

To accomplish this, Khan stressed the importance of implementing well-thought-out, balanced, and regionally competitive tax policies and measures over the long-term.

Khan said the exchange had submitted its budget proposals to the government, aimed at fostering growth, attracting investments, and promoting documentation in Pakistan's capital markets.

Adjusting Capital Gains Tax: The removal of the flat Capital Gains Tax (CGT) rate of 12.5 percent for securities acquired on or before June 30, 2022. It is also suggested that derivatives and futures contracts traded on the stock exchange be taxed at a rate of 5 percent. Additionally, income derived from foreign investments in the capital market could be exempt from tax.

Corporate Tax Incentives: To encourage documentation of the economy, it is proposed that listed companies enjoy a lower corporate tax rate, with a tax credit of 20 percent of the tax payable for those meeting specific requirements, including maintaining a minimum free float of 25 percent. Inequality in taxation among businesses could also be addressed gradually by reducing corporate tax rates and increasing tax rates for Association of Persons (AoPs).

Reinstating Tax Measures: There is a request to reinstate Section 62 of the Income Tax Ordinance, which was removed in the Federal Budget 2022-23. Furthermore, the restoration of exemption on inter-corporate dividends between companies eligible for group taxation is proposed.

Private Funds and REITs: Providing a tax credit of 100 percent to all categories of private funds without any sunset clause and restoring the exemption of tax on capital gains for private fund investors. The exclusion of private funds from minimum and withholding taxes is also recommended. In addition, exemptions on advance tax for property transfers to/from a Real Estate Investment Trust (REIT) Scheme could be considered, along with the removal of the sunset clause for all categories of REITs.

Supporting Listings: Companies considering listing should have their tax status grandfathered at the time of application, creating an incentive for companies to go public.

Eliminating Minimum Tax for Listed Companies: As listed companies are already documented and compliant with various statutes' documentation requirements, the minimum tax regime could be removed for such entities.

Proposing Amendments: Various amendments with retrospective effects should be rectified to ensure that changes in policies have a prospective nature.