Mutual funds: MUFAP pushes for removal of tax anomalies
Sees these as obstacles in expansion of AMCs.
Sees these as obstacles in expansion of AMCs. PHOTO: FILE
KARACHI:
The mutual funds industry wants the federal government to remove tax anomalies in the next budget to bring investments through mutual funds on par with direct investments.
Speaking to The Express Tribune on Wednesday, Mutual Funds Association of Pakistan (MUFAP) CEO Mashmooma Zehra Majeed refrained from commenting on the possibility of a tax being slapped on pension funds in 2016-17.
The Federal Board of Revenue (FBR) has proposed to tax the income of voluntary retirement funds, which are managed by asset management companies (AMCs), in the upcoming budget. The proposal, if approved, will result in a tax on funds, which are currently exempted from income tax, at half of the standard rate from 2016-17.
Majeed said the withholding tax of 8% on gross revenues of AMCs is “exorbitantly high”. It is payable even where the net operational income is low or even in the red.
“The Securities and Exchange Commission of Pakistan (SECP) has been urging AMCs to increase their presence in second-category cities of Pakistan. Establishing branches entail expenditure and a long gestation period before these become profitable,” she said, adding a high rate of tax on AMCs will discourage them to incur distribution expenses to promote mutual funds among retail investors.
In its budget proposals submitted to the FBR, MUFAP has proposed that the rate be decreased from 8% to 1%, which existed before July 1, 2015.
Mutual funds pay multiple taxes, including sales tax, federal excise duty and Workers’ Welfare Fund, that investors who make direct investment in the share market do not pay. This means mutual funds have competitive disadvantage, Majeed said.
Following July 1, 2015, the FBR requires all entities whose income is exempt from income tax to obtain income tax exemption certificates from the relevant commissioner of income tax. So far, mutual funds and approved pension funds were automatically allowed the exemption from withholding tax.
Although companies have applied for the exemption certificates, the whole process remains cumbersome, she said. The fact is that applications are often delayed or rejected without a proper reason, she added.
Published in The Express Tribune, May 19th, 2016.
The mutual funds industry wants the federal government to remove tax anomalies in the next budget to bring investments through mutual funds on par with direct investments.
Speaking to The Express Tribune on Wednesday, Mutual Funds Association of Pakistan (MUFAP) CEO Mashmooma Zehra Majeed refrained from commenting on the possibility of a tax being slapped on pension funds in 2016-17.
The Federal Board of Revenue (FBR) has proposed to tax the income of voluntary retirement funds, which are managed by asset management companies (AMCs), in the upcoming budget. The proposal, if approved, will result in a tax on funds, which are currently exempted from income tax, at half of the standard rate from 2016-17.
Majeed said the withholding tax of 8% on gross revenues of AMCs is “exorbitantly high”. It is payable even where the net operational income is low or even in the red.
“The Securities and Exchange Commission of Pakistan (SECP) has been urging AMCs to increase their presence in second-category cities of Pakistan. Establishing branches entail expenditure and a long gestation period before these become profitable,” she said, adding a high rate of tax on AMCs will discourage them to incur distribution expenses to promote mutual funds among retail investors.
In its budget proposals submitted to the FBR, MUFAP has proposed that the rate be decreased from 8% to 1%, which existed before July 1, 2015.
Mutual funds pay multiple taxes, including sales tax, federal excise duty and Workers’ Welfare Fund, that investors who make direct investment in the share market do not pay. This means mutual funds have competitive disadvantage, Majeed said.
Following July 1, 2015, the FBR requires all entities whose income is exempt from income tax to obtain income tax exemption certificates from the relevant commissioner of income tax. So far, mutual funds and approved pension funds were automatically allowed the exemption from withholding tax.
Although companies have applied for the exemption certificates, the whole process remains cumbersome, she said. The fact is that applications are often delayed or rejected without a proper reason, she added.
Published in The Express Tribune, May 19th, 2016.