Pakistan Stock Brokers Association (PBSA) has proposed end of double taxation whereby abolishing tax on dividends, bonus and capital value tax as it has been discouraging foreign as well as domestic investment in the Pakistan stock exchange .
Pakistan Stock Brokers Association sent budget proposals from the new fiscal year i.e. 2018-19 to Mifftah Ismail, advisor to Prime Minister Khaqqan Abbasi on finance and economic affairs that investment in Pakistan Stock Exchange could be promoted and even could broaden the tax net through encouraging companies to get listed.
“Even through listing documentation of the economy would increase as more and more companies will be listed which would increase the reporting of the accounts of non-listed companies”, said an analyst. According to the budget proposal of the Pakistan Stock Brokers Association to encourage listing at the Pakistan Stock Exchange tax benefit should be given by reducing the corporate tax.
It has been proposed an incentive would be created to increase the number of listing by trimming the tax rate to 20 percent for companies from present corporate tax rate of 30 percent.
Moreover the budgetary proposals explain in case of tax on dividend, bonus and capital value tax surely convinced the financial and tax experts that these levies have been double taxation for both the companies and investors.
Tax on dividend in fiscal year 2017-18 has been raised to 15 percent which is a serious anomaly as dividend is distributed by the company after taxation, this tantamount to be double taxation. Interest income of debt is not taxed again. The tax rate in 2015-16 was 10 percent and in 2016-17 it was 12.5 percent.
Ever since the imposition of five percent tax on bonus shares there has been major decline in announcement of bonus shares by listed firms. According to Topline Securities in its report for federal budget 2018-19 said that in 2015-16 and 2016-17 total tax collected amounted to only Rs 589 million and Rs 1 billion respectively. The brokerage collected data from PSX and further said that total bonus issues in terms of valued reduced to Rs 4.4 billion during January 2017 to January 2018 from Rs 19 billion in financial year 2013-14. Similarly the companies issuing bonus shares declined to 35 January 2017 to January 2018 from 71 in 2013-14.
Stock Brokers Association said that the bonus shares are issued out of the earned/taxed income of the company. Taxing bonus shares amounts to taxing the same income twice, it should be abolished.
Taxation on bonus shares has dampened the sentiment of stock market. The federal government has not earned as much as revenue under this head as it has suffered due to sluggishness in the stock market. Loss in business suffered by the market participants is besides the loss of the federal government, Association said.
Another point raised by the Stock Brokers Association has been the imposition of the Capital Value Tax (CVT). This levy has been termed as the major anomaly, association explained that CVT has been collected on purchase of shares and imposed in the absence of capital gain tax, therefore after the imposition of CGT, CVT must be abolished.
Currently the rate of Capital Value Tax on purchasing of shares has been stood around 0.01 percent.
