PSX advocates tax reformsto woo foreign investors

KARACHI: The Pakistan Stock Exchange (PSX) has called on the government to implement long-term economic policies and offer tax incentives to foreign investors as part of its budget proposals for the fiscal year 2024-25.

The PSX emphasised the need for stability in the tax regime, advocating for measures that would promote savings, investment, and the development of the capital market. The bourse proposed tax exemptions on capital gains and dividends for foreign investors, aligning these benefits with those available for government securities investments.

"Capital gains tax rates on listed securities should be brought in line with CGT on the sale of immovable property. This is essential to eliminate the tax-driven distortion between different asset classes."

The PSX also proposed that the CGT on all derivatives and future contracts (including cash-settled derivative contracts) traded on PSX be taxed in line with future commodity contracts traded at the Pakistan Mercantile Exchange (PMEX).

It suggested the reinstatement of the repealed section 65C of the Income Tax Ordinance, 2001, amended to allow the tax credit to certain companies meeting the prescribed requirements of 25 percent free float, which will generate CGT and other tax revenue.

The inequality of taxation of businesses should gradually be removed. In order to encourage small and medium enterprises to get listed on the SME Board, the PSX proposed that the rate of a tax credit be 50 percent of the tax payable for 3 to 4 years and 20 percent thereafter.

The PSX proposed exempting advance tax on property transfers to/from a REIT scheme. It proposed that to encourage companies to list, their tax status should be grandfathered at the time of listing application, that is, no new cases for past tax returns should be opened, except for such pending cases on which proceedings have already been initiated under the ordinance, before the date of listing application, which will continue as per the provisions of law.

The minimum tax regime should be eliminated or reduced for listed companies as such companies are documented and compliant with specific documentation requirements of various statutes.

It proposed rationalising the tax rate on dividends, as it would generate more investment in stocks and thus more revenue for the federal government. The PSX proposals said that the wording of the laws enacted by the Sindh Revenue Board, Punjab Revenue Authority, and Khyber Pakhtunkhwa Revenue Authority is overlapping. The matter, being of equal relevance to all the provinces and affecting the entire Services Sector, may be placed on the agenda of the Council of Common Interest so that a sharing formula for each province can be devised.

It also proposed that the government introduce a mechanism and regulatory structure for the launch of registered savings and investment accounts (RSIA) or individual savings accounts (ISA).