PSX working to revive tax credit on IPOs

Govt withdrew the incentive in March 2021 under IMF loan programme

KARACHI:

The Pakistan Stock Exchange (PSX) has begun consultations with the government to restore tax incentives for the companies opting for initial public offerings (IPOs) and being listed at the bourse.

The IPO allows a company to offer its shares to the general public.

“We are in consultation with … the Ministry of Finance and the Federal Board of Revenue (FBR) to restore tax credit for the companies opting for IPOs,” said Pakistan Stock Exchange (PSX) Managing Director Farrukh H Khan while talking to a group of journalists on Wednesday.

Earlier, the government used to offer tax credit for four years to the companies going to be listed at the PSX. It also offered a tax credit of 20% on taxable income in the first two years of the listing and 10% in the next two years.

The government, however, withdrew the incentive in March 2021 despite the fact that the tax credit was helping it to generate higher revenue from the newly listed companies.

“Tax credit was causing a loss of Rs100-150 million,” Khan said. “On the other hand, it led to higher collection of revenue through capital gains tax (CGT) on trading in shares of same companies at the Pakistan Stock Exchange.”

“Remember, this tax credit is for four years while the CGT collection is recurring,” a stockbroker added.

The National Clearing Company of Pakistan Limited (NCCPL) collected Rs8.8 billion in CGT and deposited it to the national exchequer in the previous fiscal year that ended on June 30, 2021.

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The government itself, among other stakeholders, remains the largest beneficiary of the tax credit and new company listings. The listings help document the company and the economy at large, make businesses transparent and increase their profit and dividend payments to shareholders.

Besides, the IPOs help new companies raise interest-free financing by offering shares to the general public at the bourse and using the financing for expansion of their businesses.

Another PSX official said that the government withdrew the tax credit under the $6 billion International Monetary Fund (IMF) loan programme after the global lender asked the country to withdraw tax exemptions to raise its revenue collection.

“The government should tell the IMF that the benefit of tax credit is larger than the assumed losses,” the official said. “The withdrawal of tax incentive has pushed a number of companies to shelve their plans for listing at the PSX.”

Published in The Express Tribune, October 14^th, 2021.

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