In an oft-referred show of ad-hocism Federal Board of Revenue (FBR) issued, what market participants said, is the most-debated certificate to exempt Karachi Stock Exchange (KSE) from the payment of six per cent withholding tax (WHT) just for a month period.
The move, according to Ahmed A Mitha, KSE’s chief financial officer, would have a favourable impact on volumes-starved bourse. CFO said market participants would now see their tax burden easing by six per cent on account of KSE services including listing and trading fees.
“The impact would be favourable in terms of six per cent (at source deduction of) withholding tax on account of KSE’s services,” Mitha said. FBR notified the exemption to KSE through issuing a Tax Exemption Certificate (TEC), numbering CIR/Z-III/LTU/KHI/2011/672.
“It is hereby directed that no deduction of tax shall be made under sub-section (1) of Section 153 of the Income Tax Ordinance, 2001 in the case of M/S Karachi Stock Exchange, from payments representing to services rendered by it,” reads the FBR certificate.
The board, however, clarified that the tax already collected would not be refunded to taxpayers and, instead, be deposited into government treasury. Tuesday saw management of KSE notifying the new development to stock members, listed companies and issuers of listed securities saying not to deduct tax on payments made to the Exchange.
“Not to deduct tax on payments made to KSE against acquiring services subject to tax deductions at source under sub-section (1) of Section 153 of the income tax ordinance, 2001 up to December 31, 2011,” KSE notices to the members and other stakeholders said.
Interestingly, tax exemption would remain valid only for 31 days of December and Exchange would again be running after tax collectors to renew the certificate. “The exemption certificate is valid up to 31.12.2011,” FBR certificate says.
Officials at KSE also appeared critical of the month-long tax exemption after prolonged discussions with tax collectors in FBR. “We would again go for a renewal after December 31,” said Nadeem Naqvi, managing director of KSE.
Ahmed A Mitha, chief financial officer of KSE, explained that tax exemption was being granted on quarterly basis. “It used to be granted on yearly basis until August (last),” he said.
Taking the matter this way would mean that FBR has already wasted at least two months of current fiscal quarter that ranges from October to December.
About financial impact of tax exemption, KSE official said it would range from Rs12 to Rs15 million of the total Rs200 million collected annually by the exchange under heads of various services.
FBR has long been under fire for its failure to devise a practicable mechanism for quantification and collection of controversial taxes like Capital Gains Tax (CGT) and has, therefore, raised a friction of what is applicable on capital gainers at country’s stock exchanges.