Govt Likely to Restore Tax Exemption Status for Private Equity, Venture Capital Funds

The government is likely to restore tax exemption status for Private Equity and Venture Capital Funds in the coming budget (2024-25) having negligible revenue impact on Federal Board of Revenue (FBR) tax collection in the next fiscal year. Sources informed that the FBR is reviewing this budget proposal of the Securities and Exchange Commission of Pakistan (SECP) for 2024-25. The argument is that exemption would have far reaching effects on start-up investment as compared to over Rs. 3 million revenue impact of this exemption. The proposal is the reinstatement of tax exemption status for Private Equity and Venture Capital Fund in case of pass through (90 percent Distribution compulsory). The promotion of investment by Private Equity (PE) and Venture Capital (VC) Funds to ignite start-up investment and facilitate restructuring of sub-optimally performing companies. In progressive markets, there are three levels of tax exemption for startups: For PE, there are normally two levels of exemption: In Pakistan for both VC and PE only two levels (Levels 2 and 3) exemptions were available until the Finance Act 2021, when they were both withdrawn resulting in unjustified taxation on same source of income. This proposal seeks to get tax benefit at the fund level. The continuity of the exemption will encourage greater participation in the private funds market and increase the size and depth of our capital markets and increase overall investment in the economy. Further, the impact of this exemption was just Rs. 3.63 million, they added.