‘Ineligible persons’: stock brokers urge Aurangzeb for consultation on Tax Law (Amendment) Act

KARACHI: Pakistan Stock Brokers Association (PSBA) has urged Finance Minister Muhammad Aurangzeb to consult stakeholders before the implementation of the income tax laws amendment, which restricts non-filers from trading in stocks, debt securities and mutual funds at the Pakistan Stock Exchange (PSX).

“If the proposed amendment is implemented without due consultation with stakeholders, it could negatively impact the stock market and the investor community,” the PSBA said in a letter addressed to Senator Aurangzeb, dated January 3, 2025.

Under the income tax laws amendment, “any person, authorized to sell securities including debt securities or units of mutual funds including a person authorized to open and maintain an account or clear such transactions, shall not sell, open an account or clear sale of securities, mutual funds, to an ineligible person being an individual or an association of persons.”

“The provision of sub-section… (however) shall not apply to…investment up to such limit as may be notified by the Board from time to time,” the letter reads.

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The PSBA urged the finance minister to convene a meeting with the association to deliberate on the implications of this amendment and explore viable solutions that ensures market integrity while achieving the desired policy outcomes.

The letter refers to the recently presented Tax Law (Amendment) Act, 2024, before the National Assembly. Among its provisions, several amendments to the Income Tax Ordinance, 2001, are being made, including the insertion of a new section 114C regarding the restriction on economic transactions by certain persons.

Talking to Business Recorder, PSBA, CEO and Secretary General, Bilal Farooq Zardi claimed that 30-40% of investors in equity and debt securities and mutual funds are non-filers in Pakistan.

He said existing laws give the right to every investor, including non-filers, to invest and trade in the securities.

Zardi was optimistic that the meeting may find relaxations, if any, for non-filers.

“Execution of the decision unilaterally may impact trading at the stock market,” he said.

Expert opinion

Experts noted the association’s letter essentially pertains to mutual fund investments, as there are minimal non-filer investors in the PSX.

Arif Habib Limited (AHL) Director Equities Tahir Abbas stated: “There are almost no or negligible number of non-filer investors at PSX.”

Meanwhile, AKD Securities, Director Research, Muhammad Awais Ashraf said the majority of investors have opened accounts with stockbrokers, the PSX, Central Depository Company (CDC), and the National Clearing Company of Pakistan (NCCPL) by disclosing their source of income.

“The basic investment account operator may include some non-filers. But they have to be filers if they opt to upgrade their accounts to large investment accounts.

“This (letter) seems more focused on mutual funds investment by individuals,” he said.