SECP holds corporate law’s sections in abeyance

KARACHI: Securities and Exchange Commission of Pakistan (SECP) deferred the implementation of some controversial sections under the Companies Act 2017 till the end of December, a senior industry official said on Tuesday. 

Ehsan Malik, chief executive officer (CEO) of Pakistan Business Council (PBC) said the acting chairman and commissioner of SECP, during a meeting early this month, assured the PBC members that the commission would revisit certain sections of the Companies Act 2017.  

“In the meantime, the application of these sections would be deferred till December 31,” Malik told a seminar at the Institute of Chartered Accountants of Pakistan.

Malik said the new corporate law is an improved version of the previous law, “but there are sections that smell of mistrust and suspicion, certainly not of empowerment or encouragement.” 

“The use of company law to encumber shareholders, officers and directors associated with generally well-regulated and tax-compliant corporations in the formal sector with further reporting responsibilities through Section 452 is highly regrettable,” he added. 

PBC CEO said the section encourages businesses to remain in the informal and unincorporated sector. 

“Discriminating against the corporate sector cannot (and should not) be the government’s objective,” he added. “As it stands the so-called global register only applies to those in the corporate sector, not to the unincorporated entities, and then only to shareholdings abroad, not real estate which the informal sector is known to be investors in.” 

Malik said it targets the very sector that produces jobs, exports and tax revenues.  SECP wanted to retain power to enter premises to search and seize records without a search warrant from a magistrate, but agreed to make it subject to approval of all commissioners instead of a single commissioner. 

“This should reduce the risk of victimization,” Malik said. “We also discussed the transfer of power to approve mergers from courts to the SECP. The revised section will revert this power back to courts where one or more of the parties to the merger are large.” 

The power to disqualify directors under Section 172 will also revert back to the courts.  PBC head said there are a number of other sections where clarification or revisions are desirable. 

“If the aforementioned revisions are made either through SECP circulars or through a modification, I am hopeful that we will get a less intrusive and more empowering set of regulations.” 

Malik said a raft of regulatory and fiscal requirements discourages incorporation, capital formation and investment in the formal economy.  “The consequence is loss of scale, competitiveness, jobs and exports,” he said. 

PBC CEO said the country is becoming hub of traders outsourcing jobs and it lacks industrialisation. “Today’s trade imbalance with lowest exports in 8 years and record imports is a result of years of liberal import policy, poorly negotiated FTA (free trade agreement), unchecked smuggling, under-invoicing, tax evasion, misuse of the Afghan Transit Treaty and the list goes on.”

He said manufacturing sector, which represents 13.5 percent of GDP, is made to carry 58 percent of the tax burden. “There are 47 different types of taxes to contend with and Pakistan ranks very poorly in the ease of doing business ranking.”