NCCPL should collect tax on bourses: SECP suggests amendment to IT Ordinance 2001

The Securities and Exchange Commission of Pakistan (SECP) has proposed amendment to the Income Tax Ordinance 2001 seeking appointment of National Clearing Company of Pakistan Limited (NCCPL) as withholding agent in place of the stock exchanges for collection of tax on stock market financing transactions.
It is learnt here on Monday that Chairman SECP Muhammad Ali has send budget proposals for 2012-2013 to the Federal Board of Revenue (FBR) for consideration. One of the important budget proposals is the collection of tax on stock market financing transactions by NCCPL on Settlement.
According to the SECP, in past the financing on the stock market was done in the form of Badla/CoT/CFS and all trades about the financing were reported on the stock exchanges. This financing mechanism continued till 2009 and under the Income Tax Law, the Stock exchanges were required to collect tax @10% of the amount involved in it. In 2009 CFS Mk-II was introduced and the reporting of the financing arrangements was transferred from the Stock Exchanges to the NCCPL. Unfortunately no changes were made in the Income Tax Ordinance, 2001 to make NCCPL responsible for collection of tax as Stock Exchanges were unable to collect the tax. In 2010 the CFS Mk-II was discontinued. Due to this the financing arrangements in the stocks were no more there.
The SECP introduced Securities Lending and Borrowing under the Securities (Leveraged Markets and Pledging) Rules, 2011 under which the financing will be provided and reported on the NCCPL platform. Still now in the absence of the responsibility under the Income Tax Ordinance, NCCPL is unable to collect the tax therefore some changes are required to address the anomalies. After these amendments NCCPL will be able to collect the tax and the tax revenue will increase.
The anomalies to address and the changes required will be appointing NCCPL as withholding agent in place of the Stock Exchanges; changes the names of the type of financing arrangements as defined under the new financing law promulgated by SECP and making the tax collected under the new amendment as minimum tax. To address the above stated objectives, changes are to be made in the Income Tax Ordinance 2001, the SECP proposed.
As per amendment in the Income Tax Ordinance, the SECP has proposed a new section 233B (Collection of tax by NCCPL) in the Ordinance 2001. The proposed section said that "the NCCPL shall collect from margin financier and securities lender tax at the rate specified in Division IIB of Part IV of First schedule in respect of providing any credit through Margin Trading or securities through Securities Lending and Borrowing under the Securities (Leveraged Markets and Pledging) Rules, 2011. The tax collected under subsection (1) of section 233B shall be minimum tax," it added.