SUNDAY JANUARY 22: SECP proposals, including tax amnesty, approved by government

KARACHI: In a move to attract more investors and to increase trading volumes at the stocks markets, the government has approved all proposals including tax amnesty, submitted by Securities and Exchange Commission of Pakistan (SECP). Federal Finance Minister Dr Abdul Hafeez Shaikh made this announcement while speaking to the members of all the three stock exchanges during his visit to Karachi Stock Exchange (KSE) on Saturday.
The finance minister announced that the decision would be implemented with effect from April 01, 2012. As per the government approval, no stock market investor would be asked to divulge source of income till 2014 and afterwards that wealth would be treated as white. The government also approved a freeze on the current rate of CGT on capital gains till 2014 and abolishment of Withholding Tax on brokers' commission.
It has been decided that the National Clearing Company of Pakistan Limited (NCCPL) will deduct capital gains tax to avoid facing income tax officers and issue certificates to tax payers. The government has also approved that individuals would be allowed to participate as financiers in the Margin Financing System and the cash requirement has been reduced to 15 percent from existing 25 percent.
The minister termed CGT a very important tax and said it was imposed to move from informal to documented economy. The minister also highlighted the government's achievements on economic front and said despite many serious challenges the country's exports had increased by 25 percent on year-on-year basis and crossed a highly significant $25 billion mark last year. In the first six months of the current fiscal, the country's exports increased by four percent, he added. Monthly remittances crossed one billion dollar mark and how country's foreign exchange reserves stood at $17 billion level.
Most importantly, he said, inflation had come down to a single digit for the first time after 24 months. He made it clear that the country's economy was not dependent on international financial institutions. "We have not taken a single penny from the IMF since May 2010," he said. "We have made all arrangements and would manage to pay off the first tranche of $1.2 billion to IMF this year," he added.
He said the agriculture sector had shown a 4 percent growth rate and there were proposals to export surplus commodities to earn more foreign exchange. He said the government had faced the toughest situation after floods last year. He pointed out that economy faced a loss of over $10 billion in the last one-and-half-years due to devastating floods in the country. Infrastructure, roads, dams, other installations and crops were destroyed by these floods, he said.
The country's GDP growth declined to 2 percent. On the other hand, a depressed global economic situation also affected country's economy. "We had to take the toughest decisions to bring the economy on right path," the minister said and added now the economy was moving on the right path and the country would achieve four percent GDP growth rate in the current fiscal year. He said the government expenditures were cut down to keep the government borrowing on lower side and only 45 percent of the allocated funds were spent in the first six months.
He said the tax collection during the first six months of current fiscal year increased to Rs 840 billion, up 27 percent as compared to the same period of last year. He was optimistic that the revenue collection target of Rs 1952 billion for the current fiscal year would be achieved. He said that the 9 percent tax-to-DGP ratio in Pakistan was the lowest in the world.
He said the energy crisis in the country was the biggest challenge for the government. He assured the brokers' community that the government was committed to resolving all of their issues. He asked the KSE to educate the market participants about the capital market and the protection of investors.
Chairman SECP Muhammad Ali in his speech said the imposition of CGT was the major reason behind a drastic decline in the daily trade on stock markets. He pointed out that the market capitalisation had declined to $33 billion from $75 billion. Not only has the imposition of CGT affected the investor's confidence, but the government has also faced income losses of over $12 billion as the government-owned scrips are 30 percent of the total market, according to him.
He read out all the SECP proposals submitted to the Ministry of Finance for the development of country's capital market and to increase trading activities on stock exchanges. He said the SECP was making all-out efforts towards development and growth of the capital market.
Chairman KSE, Munir Kamal thanked the minister for the approval of SECP proposals. He also thanked the Chairman SECP Muhammad Ali for his efforts that he had made towards the development of country's capital market. Earlier, KSE managing director Nadeem Naqvi welcomed the minister, chairman SECP and the officials from SECP and FBR. A large number of KSE members, SECP and FBR officials, representatives of Mutual Fund industry and others attended the event.