Govt mulls 30 percent tax cut for shariah-compliant listed firms

ISLAMABAD: Government is mulling a tax cut of 30 percent to encourage listings of shariah-compliant companies on the stock exchange in the new budget for the fiscal year 2019, officials said on Thursday.

The Securities and Exchange Commission of Pakistan (SECP) proposed to the FBR to reduce 30 percent of the tax payable by shariah-compliant companies for listing on the stock exchange in order to develop Islamic capital market in line with the government policy.

Sources in the Federal Board of Revenue (FBR) confirmed that a tax cut proposal is in ‘active consideration’ and tax credit facility in the range of 10 to 20 percent might be granted through the upcoming Finance Bill of 2018/19.

Analysts said the shariah-compliant listings would attract capital inflows from Islamic countries, which hold billions of dollars in surplus and are searching investment avenues.

SECP said the tax incentive will develop shariah-compliant capital market, which will lead to equitable distribution of wealth and income. “It shall lead to implementation of equity and justice in the economy and provide more avenues to shariah-compliant avenues to the investors,” it added.

The commission proposed that additional tax credit should be available to those shariah-compliant companies which have issued dividends for the last five consecutive tax years or paid minimum 20 percent for the financial year.

Analysts said the condition of five-year consecutive dividend payment seems stringent and so it needs to be dropped in order to provide incentives to newly-established companies.

SECP is implementing standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), an Islamic international non-profit body that prepares accounting, auditing, governance, ethics and shariah standards for Islamic financial institutions. One of AAOIFI’s main goals is to provide a set of standards for Islamic finance transactions similar to the roles of International Accounting Standards and International Financial Reporting Standards for conventional banks and financial institutions. However, only a handful of regulators – including Bahrain, Oman and Pakistan – have so far made AAOIFI standards adoption mandatory.