The Securities and Exchange Commission of Pakistan (SECP) has submitted a series of proposals to the Federal Board of Revenue (FBR) for the upcoming budget 2024-25. These proposals aim to incentivize investment in the stock market and mutual funds, potentially leading to a more vibrant capital market in Pakistan.
- Align Capital Gains Tax (CGT) Rates: The SECP proposes aligning the CGT rates on the sale of securities with those applicable to immovable property. This aims to eliminate a tax-driven bias towards real estate and encourage investment in the stock market.
- Reinstate Tax Credit for Investments: The SECP recommends bringing back tax credits for investments in initial public offerings (IPOs), equity mutual funds, and exchange-traded funds (ETFs). This could incentivize retail investors, particularly salaried individuals, to invest in these regulated sectors. The potential revenue impact is considered minimal.
- Reduce Tax on Brokerage and Commission: The SECP proposes a separate tax clause with a lower rate for brokerage and commission fees paid to brokers registered with the Pakistan Stock Exchange (PSX). This aims to reduce the cost of doing business for brokers and potentially stimulate capital market activity.
- Promoting Investment Culture: Tax breaks and aligning tax rates across asset classes could make the stock market and mutual funds more attractive to investors, fostering a healthy investment culture.
- Encouraging New Businesses: The reinstatement of tax credits for IPO investments could incentivize new companies to raise capital through the stock market, boosting corporatization.
- Leveling the Playing Field: Aligning CGT rates between real estate and securities would remove a potential tax advantage for real estate, potentially leading to a more balanced investment landscape.
- Supporting Brokers: Lowering taxes on brokerage fees could ease the burden on brokers and potentially contribute to the growth of the capital market.
The FBR will consider the SECP's proposals alongside other budget recommendations. The final decision on their implementation will depend on the government's overall fiscal strategy. However, these proposals highlight the SECP's focus on fostering a more dynamic and accessible capital market in Pakistan.
