Capital markets’ performance to take a hit
KSE laments increased taxes to affect market liquidity.
A five percent tax has been imposed on the issue of bonus shares, which is not a practical measure. PHOTO: FILE
KARACHI:
The board of the Karachi Stock Exchange (KSE) said increased taxes imposed in the federal budget will adversely affect the future performance of capital markets while affecting market liquidity.
In a statement issued following its board meeting on Wednesday, the KSE board said the tax collected so far is from individual investors only, constituting 7% of all investors. Banks, insurance companies, mutual funds, foreign investors and sponsors, who make 93% of total investors, are not included in the system of National Clearing Company of Pakistan (NCCPL), the body that collects CGT.
Additionally, a 5% tax has been imposed on the issue of bonus shares, which is not a practical measure, the KSE statement said. The bonus shares are merely an accounting entry and do not constitute income. It was struck down previously by the Lahore High Court. Furthermore, in the Indian jurisdiction, this matter has been tested in appeals. It has been held that bonus shares are not dividend or, for that matter, income when issued to holders of ordinary and equity shares, the KSE board said.
The board reiterated the proposal of compulsory distribution of cash dividend out of current year’s profit if the company’s reserves are equivalent to its paid-up capital. “This was introduced by Finance Minister Ishaq Dar in 1999 and had a healthy impact on investors’ confidence. However, this feature did not continue, as the PML-N government did not remain in power. Small investors are short-changed by the sponsors by declaring paltry dividend even when they earn handsomely”, the statement said.
Published in The Express Tribune, June 20th, 2014.
The board of the Karachi Stock Exchange (KSE) said increased taxes imposed in the federal budget will adversely affect the future performance of capital markets while affecting market liquidity.
In a statement issued following its board meeting on Wednesday, the KSE board said the tax collected so far is from individual investors only, constituting 7% of all investors. Banks, insurance companies, mutual funds, foreign investors and sponsors, who make 93% of total investors, are not included in the system of National Clearing Company of Pakistan (NCCPL), the body that collects CGT.
Additionally, a 5% tax has been imposed on the issue of bonus shares, which is not a practical measure, the KSE statement said. The bonus shares are merely an accounting entry and do not constitute income. It was struck down previously by the Lahore High Court. Furthermore, in the Indian jurisdiction, this matter has been tested in appeals. It has been held that bonus shares are not dividend or, for that matter, income when issued to holders of ordinary and equity shares, the KSE board said.
The board reiterated the proposal of compulsory distribution of cash dividend out of current year’s profit if the company’s reserves are equivalent to its paid-up capital. “This was introduced by Finance Minister Ishaq Dar in 1999 and had a healthy impact on investors’ confidence. However, this feature did not continue, as the PML-N government did not remain in power. Small investors are short-changed by the sponsors by declaring paltry dividend even when they earn handsomely”, the statement said.
Published in The Express Tribune, June 20th, 2014.