Senate panel proposes increased tax on income of stockbrokers

Wants rate to go up from 0.02% to 0.03%, also endorses change in CGT regime

ISLAMABAD: Amid the erosion of $6.2 billion from stock market capitalisation since the federal budget announcement, a Senate panel proposed to increase rate of advance income tax on brokers by 50%, taking it from the current 0.02% to 0.03%, in order to maximise revenues from the performing capital market.



The Senate Standing Committee on Finance and Revenue not only endorsed the government’s proposal to bring a further change in the brokers’ regime but also sought increase in collection from the Pakistan Stock Exchange (PSX). In the budget, the government announced that the 0.02% advance withholding tax on the income of stock exchange brokers would be treated as a final tax instead of the existing adjustable regime.

On the one hand, the government has proposed to increase the minimum tax rate on companies reporting losses by 25%, but on the other it is not ready to get more revenues from the stock market, argued Senator Osman Saifullah Khan of the PPP.

He proposed that the rate of advance tax on brokers should be increased by another 50% to 0.03%, which the standing committee endorsed. Member Inland Revenue Policy of the Federal Board of Revenue Dr Mohammad Iqbal also backed the committee’s proposal.

However, if the National Assembly approves the committee proposal, the stock market, which is already reeling under a change in the Capital Gains Tax (CGT) regime, may not take the new change positively. In the budget, the federal government also proposed to change the rates of CGT and dividend tax.

The market nervously reacted to these changes and, coupled with selling of shares due to repositioning of the PSX into MSCI Emerging Markets, the KSE-100 lost 4,082 points during the outgoing week. It ended at 48,555, a 7.8% reduction in a single week. In absolute terms, market capitalisation reduced by $6.3 billion to close at $93 billion.

Change in CGT rates also endorsed

The standing committee also endorsed the government’s proposal to change the capital gains tax rates for the stock market. In the budget, the government proposed that instead of a three-tier tax structure depending on the holding period, stock market gains of filers of income tax returns should be taxed at a flat rate of 15%, irrespective of the holding period. For non-filers, the new proposed rate is 20%.

The CGT tax structure has been changed on demand of the PSX’s management and Securities and Exchange Commission of Pakistan, said Dr Mohammad Irshad, the FBR chairman. He said that this will increase trading volumes.

Over 71% securities are traded within one year of holding period, said Sajidullah Siddiqi, Chief Income Tax Policy of the FBR.

The standing committee also backed the government proposal of increasing the dividend income rates from 12.5% to 15%.

The standing committee also endorsed the government’s proposal to expand the definition of non-resident Pakistanis by including “reportable persons” into it. The definition has been expanded on the advice of the Organization for Economic Cooperation and Development, said Dr Mohammad Iqbal, FBR’s Member IR policy.

PSX temporarily changes shares’ closing price formula

Pakistan has recently become a member of the OECD.

Dr Iqbal said that Pakistani financial institutions will be bound to provide information about non-resident Pakistanis and reportable persons to the foreign countries. Unlike in case of Pakistani banks that are denying providing information to the FBR, banks are ready to provide information to foreign jurisdictions due to fear of the United States, said Dr Iqbal.

Published in The Express Tribune, June 3^rd, 2017.

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