PSX calls for rationalization of tax on bonus shares in Budget Proposals 2018 – 19

Pakistan Stock Exchange (PSX) has identified numerous regressive taxation amongst other flawed policies in the budget proposals submitted for the Federal Government’s Budget. The proposals have been essentially made to focus on “some impediments and disincentives that have crept in to the development of the capital market, as well as the documented corporate sectors.”

The proposals aim to help government get rid of disincentives like multiple taxation which have in turn been hampering the development of the capital market. These proposals are also deemed essential by PSX, as they would help Pakistan’s corporate sector compete efficiently in the global arena.

Rationalization of Tax on Bonus Shares

PSX calls for abolishing taxes on Bonus Shares after the levy of 5 percent was introduced in The Finance Act 2014. The tax aimed at generating more revenue for the government has significantly reduced the issuance of bonus shares in the past four years.

Number of companies and bonus share values during last four and a half years:

*July 2013 – June 2014 marks the period before The Finance Act 2014

Furthermore, PSX also negated the widely held assumption that companies since the imposition of Tax on issuance of bonus shares have distributed more cash dividend by presenting historical data. The data shows that the distribution of cash as a percentage of Profit after Tax has not changed pre and post bonus tax period.

PSX in return has called for an abolishment of taxes on bonus shares primarily due to the reluctance of companies to issue bonus shares as a consequence of high taxes. The proposals calls for abolishment of Section 236M and 236N of the ordinance.