PSX Proposes Lower Tax Rates For Listed Companies in Budget 2024-25

Pakistan Stock Exchange (PSX has proposed that the rate of tax for all listed companies be permanently lowered by giving a tax credit of 20 percent including a minimum free float of 25 percent. This will result in higher tax revenue from listed companies along with increased documentation and transparency once listed, as well as higher revenue from Capital Gains Tax (CGT). PSX has submitted a series of important tax proposals to the Ministry of Finance (MoF) and the Federal Board of Revenue (FBR) for consideration in the federal budget for the fiscal year 2024-25. The measures recommended are revenue-positive and will encourage resource allocation towards productive and documented sectors of the economy. This is important for economic growth and employment generation in Pakistan. Pakistan Stock Exchange has recently seen an upsurge in its performance in response to the stability measures introduced in the macroeconomy. The market capitalization has increased by almost Rs. 4 trillion in the outgoing year, creating a significant wealth impact on the economy. Foreign inflows amounting to approximately USD 132 million have been invested in the country through the stock market since July 2023. It is imperative that the Ministry of Finance and the FBR consider the proposals presented by PSX to ensure that the stock market continues to contribute towards economic growth, taxes, foreign investor inflows and documentation of the economy. This is a crucial step to ensuring the continuity of the positive momentum of the capital market and economic recovery. PSX emphasizes that the government prioritizes the comprehensive documentation of all economic activities. Capital markets are among the most documented sectors of the economy. A broad-based capital market supports key economic and social objectives, such as increasing the number of taxpayers, boosting savings and investment rates, and reducing wealth inequality. To meet these objectives, investors need favorable and stable tax treatment. Pakistan Stock Exchange has presented several proposals to the Ministry of Finance and the Federal Board of Revenue for the federal budget FY 2024-25. The most important proposals, which aim to positively impact Government revenues, include the following: Exchange-traded derivatives are also viewed as better alternatives to leveraged trading platforms. Hence, it is crucial to have a favorable treatment for all derivatives and futures, including Cash Settled Derivative Contracts traded on PSX to establish a robust and efficient Derivative Market. Therefore, PSX proposed that the amendment made in clause (29) of Section 2 and newly inserted section 236Z of the Ordinance through Finance Act 2023 may be withdrawn. It is pertinent to mention that in the period July 01, 2022 to June 30, 2023, 53 companies announced bonus shares amounting (at Face Value) to over Rs. 31.4 billion; whereas for the period July 01, 2023, to February 29, 2024, only 04 companies announced bonus shares amounting (at Face Value) to Rs 446 million. Resultantly, the Government has not fetched any significant revenue under this head; rather, the Government has lost CGT which could have been earned on trading of such an increased number of shares as the same quantum of bonus shares also been issued this year. It is, therefore, important to incentivize REITs. This will attract more investments, particularly by companies with disclosure of actual prices and income. It will generate indirect and additional revenues from allied businesses and is revenue-positive. Moreover, speculative pressure on real estate property prices will also ease. It is proposed to exempt advance tax on property transfers to/ from a REIT Scheme and to remove the sunset clause, i.e. June 2023 for all categories of REIT. The detailed Budget proposals from PSX are available here.