The Securities and Exchange Commission of Pakistan (SECP) has shared with the Federal Board of Revenue (FBR) its proposals for reform in the taxation regime.
These proposals for implementation through the 2013 Finance Act aim at removing fiscal irritants to foster growth of the capital markets, corporate and NBFC sectors, while at the same time ensuring that these sectors make an equitable contribution to the government exchequer for overall development of the country.
The proposals primarily aim at achieving documentation of economy by reduction in corporate tax rates; promoting saving culture through mutual fund and pension funds; promote holding company structure; and remove irritants and provide a level-playing field for different sectors within the SECP’s regulatory ambit.
The SECP has long been advocating a reduction in corporate tax rate to encourage growth of corporate sector and documentation of economy in line with the international taxation trends. The SECP has proposed to the FBR a gradual reduction in the corporate tax rates (private company, unlisted public company and a listed company with simultaneous increase in the tax rate of Association of Persons (AOPs). Further, fiscal incentive for listed companies is proposed to distribute dividend – the rate of tax in case a listed company not distributing a minimum of 30% of its after tax accounting profits of the year as dividend, will be 3% higher than the normal tax rate for listed companies.
In order to encourage consolidation of core resources of corporate business groups through functional holding companies and to expand the scope of “group relief” and “group taxation” under the 2001 Income Tax Ordinance, the SECP has recommended to allow offsetting the accumulated loss of preceding three tax years subject to the conditions that the surrendering company ownership for last three tax years prior to the formation of the group is as provided under the tax law. It is also proposed to increase the time period allowed for surrender and adjustment of the surrendered losses from existing three years to five years, and to reduce the ownership condition of 100% shareholding in the subsidiary company by the holding company, to 90% in case the subsidiary company being a listed company, undergoes delisting and becomes a non-listed company. The present law provides the facility of additional tax credit under the Voluntary Pension System, if investment is made after 40 years of age, only up to June 30, 2016. It is proposed that the same may be extended for a period of five more years.
A reduced tax rate on import value of gold @ of Rs25 per ten grams instead of existing @1% is proposed, provided gold is imported by a corporate member for trading at the commodity exchange to make legally imported gold competitive with illegally imported gold.
In order to increase financial inclusion and outreach in the country, the tax credit is proposed to be extended to asset management companies on incurring expenditure on the establishment of branch offices or sales offices outside the cities of Karachi, Lahore, Islamabad and Rawalpindi.
