Promoting corporate culture: Regulator proposes big cut in corporate tax
In a briefing to the National Assembly Standing Committee on Finance on Thursday, Securities and Exchange Commission of Pakistan (SECP) Chairman Muhammad Ali said the regulator proposed a reduction in corporate income tax from 35 per cent to 25 per cent.
On the other hand, it recommended an increase in income tax for the Association of Persons (AOPs) from 25 per cent to 35 per cent.
“All over the world, the corporate income tax is lower than the tax on AOPs, but we are providing incentives to those who do not want to pay tax,” said Ali, adding businesses have low appetite for corporatisation due to requirements of documentation and disclosure.
Ali said the AOPs maintain two accounts, one for paying taxes and another for personal consumption. According to him, in Pakistan there are only 59,530 registered firms while in a country of the same size the number is above one million.
Ali was confident that this time SECP would be able to convince the Federal Board of Revenue (FBR) to revise the tax rates as in the past such proposals were turned down.
The finance ministry and the FBR oppose the reduction in corporate tax as they get a huge amount of income tax from the big firms, which provide some cushion in the face of no significant expansion in the income tax net.
Ali said total worth of Pakistan’s largest stock market – the Karachi Stock Exchange – was the lowest in South Asia and Far East. The market’s total capitalisation was $39 billon, which is only 20.4 per cent of the total size of national economy. In comparison, the ratio in India is 94.2 per cent, in Malaysia 185 per cent and Sri Lanka 40.9 per cent.
Ali said 200 brokers have monopoly over the Karachi bourse and to break the monopoly the passage of the Demutualisation Bill through parliament is required. “Currently, the ownership rights and trading rights are not segregated.”
The bill has already been passed by the National Assembly but is pending in the Senate.
Ali said SECP was considering introducing terrorism insurance and crop insurance because at present the insurance penetration in the country was very low at 0.7 per cent. He said the insurance business was not flourishing due to monopoly of the State Life Insurance Corporation.
He underscored the need for corporatising the agricultural sector and crop insurance would be the first step in this direction. However, the spread of crop insurance would be very slow.
Published in The Express Tribune, January 13th, 2012.
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