Corporate sector, REITs: Major tax relief expected

10 Jun, 2021

ISLAMABAD: The government is expected to announce some major tax relief measures for the corporate sector, development of the capital market, regulated commodity market, documentation of the real estate sector, and promoting the real estate investment trusts (REITs) in budget (2021-22).

Sources told Business Recorder, here on Wednesday that the Federal Board of Revenue (FBR) will incorporate certain proposals of the Securities and Exchange Commission of Pakistan (SECP) in the upcoming budget (2020-21).

The FBR is presently reviewing the budget proposal of the SECP for incorporation in the Finance Bill, 2021.

According to the SECP budget proposals received at the FBR House, in order to create a level playing field and to promote development of regulated non-bank financial market and corporate sector, the SECP every year collects, reviews and submits tax proposals relating to its regulated sectors to the FBR.

Considering tax impediments for regulated sectors, lowest ranking of index of paying taxes under the World Bank’s Ease of Doing Business Report, 2020, and the tax reforms agreed by the federal government under the Capital Market Development Plan and Future Roadmap 2020-2027, critical tax proposals have been submitted to the FBR.

The policy-related proposals focused for removing tax anomalies relating to the REITS structures for documenting real estate sector by promoting REITs; unlocking potential of private funds by levelling tax filed, and addressing disadvantageous treatments and extending tax credit to newly-introduced portfolio investment product of Exchange Traded Funds (ETFs).

The proposals would be supporting regulated commodity market for trading of electronic warehouse receipts; rectifying anomaly and clarifying non-applicability of additional CGT on foreigners due to exclusion from the Active Taxpayers List (ATL); providing corporates with a level playing taxation regime with other forms of business and incentivising raising of capital through growth enterprise market (GEM).

The SECP has proposed to exempt foreign investors from applicability of 100 percent additional tax in case their name is not appearing in the ATL in the Tenth Schedule.

Presently, 44 percent of total foreigners investing through the PSX are currently not appearing in the ATL list as a result of which they are subject to the Capital Gain Tax (CGT) @ 30 percent.

For such investors who do not have any other source of income in Pakistan except capital gains, should not be subject to additional 100 percent tax for not being in the ATL.

It will align it simplified tax regime for Roshan Digital Account (RDA) holders, wherein, tax rate applicable for persons appearing on the ATL will be charged to RDA holders.

Foreigners may be subject to taxation in their home country being resident tax payer therefore, a balanced taxation of their income in Pakistan is essential,

The rationale taxation of foreigner’s income from investment will result in inflow of foreign exchange, boosting foreign exchange reserves of the country. Broaden investor base of capital markets and more liquidity to capital markets by luring foreign investors.

Foreigners represents approximately 5% of overall capital market investors trading and removing additional tax will not materially impact tax revenue and fresh investments will result in further tax revenue, in case tax incentives are provided.

For documenting real estate sector and promoting REITS structure, the SECP has proposed to reduce tax on dividend from REITs from 25 percent to 15 percent to synchronise it with mutual funds [First schedule, Part-1, Division-III, paragraph B] and exempt advance tax on property transfers to/from a REIT Scheme u/s 236C and 236K and exemption for CGT provided in clause 99A, Part 1, 2nd schedule be applied to all categories of REITs (mix-use projects) without any sunset clause.

The objective is to support government vision for development of housing sector and allied industries; promote regulated real-estate sector for promoting documentation and transparency, introduce a level playing field for regulated sectors, remove disadvantage/dis-incentive caused to the REIT sector (Presently 1 licensed REITs, 4 REITs in pipeline and 9 RMCs registered), and increase overall tax revenue for the FBR and the provincial revenue authorities.

The SECP has proposed exemption of physical settlement of commodity futures contracts and EWRs from the application of section 153 like these are exempt from GST under SRO 445(I)/2004 June 14, 2004.

The objective of the proposal is to transform agricultural landscape, promote financial inclusion, improving storage and handling standards to reduce post-harvest losses of farmers in line with government’s vision.

The aim is to develop an ecosystem for storing, preserving, trading and providing ease in financing of a range of agricultural commodities through introduction of Electronic Warehouse Receipt (EWRs), translate it to considerably greater economic gains for farmers and eventually impact the national economy.

Copyright Business Recorder, 2021

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