Bonus shares plunge five-fold in 3 years on taxation

KARACHI: Bonus shares fell almost five times to Rs4.4 billion during the past three years on taxation, while tax revenue collection on the head also declined during the period, a brokerage said on Friday.

“Ever since the imposition of five percent tax on market value of bonus shares/stock dividends in FY15 budget, there has been a major decline in announcement of bonus shares by the listed firms,” Topline Research said in a budget preview.

The brokerage, while citing the data of Pakistan Stock Exchange, said the government collected Rs589 million on account of taxes on bonus shares in the fiscal year of 2016 and one billion rupees in the fiscal year of 2017.

Total bonus shares in terms of values declined to Rs4.4 billion between January 2017 and January 2018 from Rs19 billion in 2013/14.

Number of companies issuing bonus shares also decreased to 35 from 71 during the same period.

“Keeping in view reduced revenues and bonus issue, the Securities and Exchange Commission of Pakistan is proposed to levy the current tax rate on the face value of bonus issue,” Topline Research said.

Meanwhile, stock brokers urged the government to abolish tax on dividends, bonus and capital value as the double taxation is discouraging local and foreign investments in the capital market.

Pakistan Stock Brokers Association, in its budget proposals for the next fiscal year of 2018/19, said government should give tax benefits by reducing corporate tax rate.

The corporate tax rate should be trimmed to 20 percent from the present 30 percent.

“Tax on dividend in fiscal year 2017-18 was raised to 15 percent, which is a serious anomaly as dividend is distributed by a company after taxation, and this is tantamount to double taxation,” the association said. The tax rate in 2015/16 was 10 percent and in 2016/17 it was 12.5 percent.

The association said proposed restructuring of collecting tax on capital gains along with specific holding period as it would increase volume as well as discourage the parking of funds in real estate sector, which has been dumping ground of black economy.

Stock brokers said currently capital gains tax is collected at 15 percent for filer and 20 percent for non-filer of tax returns.

They are tax exempted if shares are purchased before July 1, 2013. “We expect the government to reduce the CGT tax incidence for filers along with specific holding period,” Topline Research said.

“However relief for non-filers may not be forthcoming given the government’s continued focus on increasing the number of filers.”

Samiullah Tariq, director research at Arif Habib Securities said new CGT should

be 10 percent if holding period is up to one year, nine percent for the period of one to two years and eight percent for 2-3 years of holding period and it should be exempted for investors holding equity above three years.