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ISLAMABAD: Stock brokers Wednesday submitted budget proposals for 2022-23 to the Finance Minister Shaukat Tarin including reduction in capital gains tax (CGT) on disposal of securities to encourage long-term investment in the stock market.

Tarin held a meeting with a delegation of Pakistan Stockbrokers Association led by its Vice Chairman Zahid Latif Khan at the Finance Division, here on Wednesday.

Tarin was informed that the present rate of capital gains tax at 12.5 percent is exorbitant and amounts to discouraging investment in the capital market. To encourage investment in the stock market for a longer period, there should be no tax where the holding period is equal to or exceeds three years.

In this connection, the revised slabs of the CGT have been proposed on disposal of securities for 2022-23.

The capital gains tax under section 37A applicable to filers may be made applicable to non-resident Pakistanis through amendments in the Income Tax Ordinance 2001 to encourage foreign remittances, proposal added.

The delegation apprised the finance minister of certain issues and challenges impeding the growth of capital market in Pakistan and sought support of government to resolve their issues.

They requested for providing tax incentives on capital gain and investment in stock exchange.

Tarin said that the government is encouraging investment and enlisting of entities in the stock exchange.

He further assured the delegation his support to resolve their issues and for growth of capital market in Pakistan.

According to the budget proposals for the next fiscal year, the document contains tax recommendations as well as sector-wise proposals for consideration of the government and to help them prepare a capital market, business, and investor-friendly budget.

The intention is to request to provide incentives for capital formation and to remove disincentives, which is more essential for Pakistan Corporate, in order to compete effectively in the world.

The capital market plays a vital role in an economy.

There can be no economically successful Pakistan without a vibrant capital market.

These proposals are also focused on some impediments in the growth of the market, and anomalies hurting the depth of the stock market.

The core principles of the proposals are to promote the investment culture, to encourage the investors, and to incentivize the direct investors in the capital market.

The association proposed that the dividend is paid out of the tax-paid income of the company, tax on dividend amounts to triple taxation of the same income.

The present tax rate on the dividend is confiscatory in nature and has discouraged investment in stocks which in turn has slowed down the process of industrialisation.

Reduction in the tax rate would generate more investment in stocks and thus, more revenue for the federal government.

Government should introduce a mechanism to remove triple taxation of company’s profits; (a) Once in the hands of the company; (b) Once in the hands of the sponsors; and (c) Once in the hands of shareholders as dividends.

The association proposed that the tax rate is 25 percent in case of a person receiving a dividend from a company where no tax payable by such company due to exemption of income or carry forward of business losses or claim of the tax credit, thus, 50 percent for non-filers which is more than normal tax regime of 29 percent. It is therefore proposed that the tax rate is exorbitant for such a category may be reduced.

In Pakistan, the percentage of investment and savings to GDP is relatively very low.

The number of current UINs clearly reflects that some sweetener is offered to increase the same. In order to provoke individuals to save/invest in equity markets, a tax exemption threshold may please be introduced. It is strongly recommended that the new threshold be offered in a tax year only for individuals, it added.

Copyright Business Recorder, 2022

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