Mattias Martinsson voices concerns on Pakistan's CGT plans

June 07, 2024 (MLN): Taking a cue from other countries worldwide, Mattias Martinsson, Founder and Chief Investment Officer at Tundra Fonder has expressed his concerns and suggestions in response to rumors about Pakistan potentially increasing its Capital Gains Tax (CGT) substantially on equities.

"We have repeatedly called for Pakistan to abandon its counterproductive CGT and replace it with a turnover-based tax similar to what Vietnam has," said Martinsson on social media platform X.

Vietnam's turnover tax, set at 10 basis points when selling, is much simpler to collect and would result in significantly more tax revenue for the Federal Board of Revenue (FBR), he stressed.

Most importantly, it would make the administrative hurdles for foreign investors bearable, Martinsson added.

He stated that Vietnam today turns over $500-1000 million on a daily basis, compared to Pakistan's $50-100m. "When we began investing in Vietnam in 2013, turnover was $100-200m a day," he said.

Martinsson emphasized the challenges foreign investors face when entering the Pakistani market, citing the lengthy process and monthly tax collection requirements.

"It takes about 1-2 months for a new foreign investor to get access to Pakistani equities, and the major hassle is the monthly tax collection where a local tax advisor is required," he said.

He questioned the rationale behind making it difficult for foreign investors, especially considering the relatively small amount ($10m annually) generated from CGT collection.

Martinsson said that Pakistan's biggest problem is the structural Balance of Payments (BoP) deficits. He urged measures to enhance the country's export base and attract Foreign Direct Investment (FDI).

"There will be foreign investment, but what will the required returns on these investments be?" he questioned, contrasting India's sub-10% returns with Pakistan's potential ~30%.

Martinsson advocated for the abandonment of CGT for foreign investors. "I really hope sanity prevails on this one," he said. "Abandon the CGT for foreign investors once and for all."

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