SECP for exempting CGT deduction by mutual funds: entities already exempt from tax

The Securities and Exchange Commission of Pakistan (SECP) has asked Federal Board of Revenue (FBR) to exempt the capital gain tax (CGT) deduction by mutual funds from the entities already exempt from tax.
According to the budget proposals (2012-2013) of the SECP circulated to the FBR here on Monday, the commission has requested the tax authorities to exempt the capital gain tax deduction by mutual funds from the entities already exempt from tax through amendment in clause 47 (B) of Part IV, Second Schedule of the Income Tax Ordinance 2001.
The income of CIS, REIT and Modaraba is exempt from tax if 90 percent of the profit is distributed as dividend (Clause-99 and Clause-100 Part-I of Second Schedule). Any payment from a provident fund is exempt from tax in the hands of recipient [clause-22, Part-1, 2nd Schedule].
The accumulated balance payable to an employee participating in a recognised provident fund is exempt from tax [clause-23, Part-1, 2nd Schedule]. The income of a provident fund or superannuation fund is exempt from the following sources [clause-57(3)(i) & (ii)]: House property and investment in government securities.
In light of the above exemptions, if any of the Mutual Fund, Pension Fund, Provident Fund or other retirement fund invests in the units of the Mutual Fund and make gain on redemption, then under the Income Tax Ordinance, Mutual Fund has to deduct tax under the First Schedule as Capital Gain from such gain although the gain of such investor (Fund) is exempt for tax, SECP said. The existing practice of obtaining yearly an exemption certificate u/s-159 is cumbersome and time consuming for the entities and delayed refunds for any tax suffered against the exempt income. This exemption is needed to exempt the retirement fund entities from tax deduction on capital gains by mutual funds, SECP added.
As per the proposed amendment in the Income Tax Ordinance 2001, the provision of section 150,151 and 233 and Part I, Division VII of First Schedule shall not apply to any person making payment to National Investment Unit Trust or a collective investment scheme or a modaraba or Approved Pension Fund or Approved Income Payment Plan or a REIT Scheme or a Private Equity and Venture Capital Fund or a recognised provident fund or an approved superannuation fund or an approved gratuity fund, SECP added.
Through another proposal, the SECP has informed the FBR that the exemption of profit and gains of PE&VC Funds from tax given in 2010 would expire in 2014. A new venture generally takes around ten years to reach break-even thus the expiry of fiscal incentive, while the Funds are still at nascent stage and need protection, will discourage venture capitalist to invest in Pakistan. It is proposed that to induce investors into risky businesses, the tax incentive be extended for a period of ten years from the date of registration, SECP added.