Govt offers incentives for new listing
design: mohsin alam
The interim government has decided to boost the stock market by offering incentives for listing new companies and shifting one-third of state-owned enterprises’ borrowings from the capital market.
These decisions were made during a second meeting of the Cabinet Committee on Economic Revival (CCER) last week, according to sources.
Headed by Finance Minister Shamshad Akhtar, the cabinet committee is focusing more on non-urgent issues while largely overlooking problems making it difficult for most people to make ends meet.
The cabinet body has decided that relevant government departments would work to resolve taxation issues related to new company listings on the Pakistan Stock Exchange (PSX). The minister directed the Federal Board of Revenue (FBR) and the Securities and Exchange Commission of Pakistan (SECP) to address taxation issues related to listed and unlisted companies and develop a mechanism for listing the maximum number of companies on the PSX, as per the decision.
Providing any tax incentives to the stock market or companies at this stage would be viewed unfavourably, especially at a time when the salaried class is paying Rs264 billion in taxes – more than many sectors in Pakistan.
The committee also discussed amending government rules for borrowings through securities issuance. It was proposed that government securities should be auctioned at the PSX to reduce reliance on banks for borrowing. The government will issue short-term Shariah-compliant debt instruments.
The meeting was informed that the development of a secondary market for trading debt instruments, especially government bonds, is not functional.
According to another decision, the SECP will jointly work with the Power Division to explore possibilities for State-Owned Enterprises (SoEs) to borrow from the capital market to meet their liquidity and financing needs.
As of March, the federal government has extended roughly Rs3.5 trillion in sovereign guarantees to facilitate borrowing by loss-making entities from commercial banks. The maximum amount of guarantees, Rs2.5 trillion, has been extended in favour of the power sector, followed by Rs244 billion for Pakistan International Airlines (PIA).
This decision has been taken in light of the heavy reliance of these loss-making entities on commercial banks and the Ministry of Finance. The meeting proposed that the Power Division would facilitate the listing of at least one-third of companies on the stock exchange that meet corporate sector requirements.
The Ministry of Finance was also instructed to prepare a policy for cabinet approval to ensure the listing of for-profit licensed companies on the stock market.
The cabinet body has also established a subcommittee to discuss the proposal of the Pakistan Business Portal. The committee members include the minister of planning, deputy chairman of the Planning Commission, secretary of the Finance Division, secretary of the Power Division, secretary of the Commerce Division, secretary of Law, and secretary of the Board of Investment.
The Board of Investment will also identify sectors that can start businesses without obtaining no-objection certificates, while they will be required to complete documentary requirements within a stipulated timeframe after starting their businesses.
Sources indicate that the majority of the cabinet committee’s time is spent resolving issues unrelated to Pakistan’s pressing concerns such as high inflation, rupee devaluation, and the high cost of energy. It is focusing on areas typically addressed by a government elected by the people for a five-year term.
The SECP presented proposals covering issues such as fixed income, the equity market, insurance, private equity, digitalisation, and pending rules for Modaraba companies and corporate restructuring companies.
The meeting also discussed the proposal to convert the Crop Loan Insurance Scheme (CLIS) into a broader co-insurance pool structure, but no decision was reached.
Sources say that Finance Minister Akhtar is keen to fast-track the process of providing incentives for the capital markets.
This move is expected to aid the evolution of the pension funds industry in the country, with different employers hiring and engaging pension funds for their employees’ retirement benefits.
Published in The Express Tribune, September 5th, 2023.
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