Budget 2018-19: PSX proposes rationalisation of CGT rates

Wants government to encourage investment in under-pressure stock market

KARACHI: The Pakistan Stock Exchange (PSX) has proposed to the government to rationalise Capital Gains Tax (CGT) on the transaction of shares, as the management seeks measures to boost the KSE-100 Index that has retreated close to 18% since it hit a record high of 52,876.46 in May 2017.

Presenting budget proposals to Adviser to Prime Minister on Finance Miftah Ismail, a PSX delegation, under chairperson Muneer Kamal, recommended to rationalise CGT and other taxes to re-attract lost foreign and local investors.

The PSX’s KSE-100 Index was the world’s worst performing market in 2017, in sharp contrast to the previous year when it posted a substantial 45% return to become the best regional market.

Experts largely attributed last year’s negative return of 20% (in dollar terms) to primarily negative budget measures when the government increased the effective rate of Capital Gains Tax (CGT) to 15% (20% for non-filers) for tax year 2018 across all holding periods, leaving shares only acquired before July 1, 2013 tax-free.

Investors also remained concerned over political instability, which worsened after the disqualification of Nawaz Sharif as prime minister.

However, the PSX feels the upcoming budget could be a tool to attract greater liquidity. Kamal was quoted as saying in a PSX notice on Monday that the “government support for (the) capital market would bring in both domestic and international funds into Pakistan and help corporate sector to expand, generate employment, raise income levels and support increase in government tax revenues.”

The delegation repeated PSX years’ old demand of rationalising taxation on ‘bonus shares’.

The PSX has recommended the government to collect 5% tax on the value of bonus shares instead of collecting 5% tax on face value at present.

Market talks suggest that these proposals could be accepted, helping the government collect Rs2.5 billion per year compared to Rs0.5 billion it collected on average in the last three-four years.

The stock market management also recommended the government to regionalise the taxation regime for brokers; treatment of unrealised gain on sale of immovable property to a REIT (Real Estate Investment Trust) scheme; investment in REIT be treated as investment in stock fund.

They also discussed taxation issues related to tax credit on enlistment of companies on the stock exchange; Margin Financing System (MFS); and taxability of interoperate dividend.

Published in The Express Tribune, March 20^th, 2018.

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