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Govt reduces tax on PSX services to 2pc from 8pc

By Javed Mirza
May 30, 2017

KARACHI: The government has substantially brought down the tax rate on services offered by the Pakistan Stock Exchange (PSX) to two percent from eight percent, which will lead to an improved profitability of the bourse, an official said on Monday.

“To further improve the performance of the stock exchange it is being subjected to reduced rate of minimum tax at 2.0 percent on its services,” said the budget document for the fiscal year of 2017/18.

Presently, services rendered by PSX are subject to eight percent minimum tax, which results in an effective tax rate much higher than the prevalent corporate tax rate. Government reduced the corporate tax rate to 30 percent in the budget for the next fiscal year.

Under the Finance Act 2015, the tax deductible at the rate of 8.0 percent was made minimum tax for providing or rendering services by all the service sector companies.

This minimum tax treatment adversely affected the profitability of the bourse, which is paying higher tax as compared to what it would pay otherwise if it were required to pay tax on profit at an applicable corporate tax rate.

However, after negotiation a reduced rate of minimum tax of 2.0 percent of the gross amount of turnover from all sources has been introduced on freight forwarding, air cargo, courier, manpower outsourcing, hotel, security guard, software development, IT and IT-enabled, tracking, advertising other than by print or electronic media, share registrar, engineering and car rental services.

The stock exchange, in its budget proposals, urged the government to exempt PSX from the minimum tax regime or alternatively the similar facility of reduced rate of 2.0 percent minimum tax might be provided to PSX on the services provided or rendered by them.

The PSX’s official said the development would result in increased profitability of the bourse and would attract even more interest for the public offering.

In January, PSX sold 40 percent of its strategic stake to a Chinese-led consortium at an estimated value of Rs8.96 billion ($85 million) as part of the demutualisation efforts. Out of the remaining 60 percent, 40 percent stake is held by brokers, while 20 percent shares are to be offered to public in an initial public offering (IPO). A specific IPO date has not been specified, but officials said the entire divestment is targeted to be completed by June-end.