SECP Shares Key Tax Proposals Critical for Capital Markets and Corporate Sectors

In due consultation with the stakeholder and through thorough internal review and deliberations, SECP has shared key tax proposals considered to be critical for capital markets and corporate sectors.

These proposals broadly cover the following areas:

  1. Addressing the anomaly created in the definition of security u/s 37A for computation of capital gains tax on listed securities. New listings have been severely impacted due to withdrawal of income tax rules providing taxation of capital gains on disposal of shares of a private after listing at the exchange, in light of a court judgment.
  2. For unlocking the potential of Private Funds, proposals to allow perpetual pass-through status to all categories of private funds have been proposed. Further, considering revamping of the regulatory regime and introduction Private Funds Regulations, 2015 also require consequential changes to the Income Tax laws.
  3. Proposal for promoting documented REIT structures was aiming at addressing short term and inadequate tax incentives for promotion of documented real estate sector through REITs affecting further interest in this area. These include allowing perpetual pass-through status covering all categories of REITs, granting exemption from capital gains, taxation of dividends from REITs, and advance tax on the transfer of property.
  4. Reducing the cost of the business in the insurance sector that is hampering its growth and penetration, is another area covered in the proposal. Since insurance enables risk mitigation and addresses financial fragility issues, taxation at federal and provincial levels on insurance is proposed to be rationalized. FBR’s support is sought for proposals relating to provincial taxes and exercise duty with the committee, constituted to inter alia look into the harmonization of provincial taxes.
  5. Proposal for the development of a regulated commodity market by addressing the issue of withholding tax u/s 153 on the physical settlement. Applicability of withholding tax on the sale of commodities in case of physical settlement of trades through Pakistan Mercantile Exchange platform is a major impediment for participants to trade on the regulated platform, hence proposed to be exempted;
  6. Inequality of taxation between incorporated and unincorporated businesses is discouraging corporatization and documentation. Different options are being considered for reducing this inequality over a period of time.
  7. Considering the market condition, reducing CGT rates for 2 years on the disposal of listed securities can be looked into favorably and restoring the distinction between short-term gains and long-term gains.

SECP and FBR are working on several aspects of these proposals in close coordination.

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