Attracting investment: Govt considering amnesty for stock brokers

Friday, January 13th, 2012 3:30:06 by


The government is considering offering an amnesty scheme to attract investment in the dwindling stock market by allowing tax evaders to declare their hidden incomes by paying a nominal investment tax before investing the money.

Sources in the Federal Board of Revenue (FBR) told The Express Tribune that the revenue board and the Securities and Exchange Commission of Pakistan (SECP) were fine-tuning the amnesty scheme for investors and brokers who had made billions of rupees when the stock market was flying high but did not declare their incomes in the income tax returns.

Though the gains made on investments in the stock market were exempted from income tax up to June 2010, most of these people did not declare their incomes in their annual income tax returns.

The purpose of the scheme is to attract new investment to the stock market, they added. However, there are differences between the FBR and the SECP on the modus operandi. FBR wants to charge investment tax at nominal rates, providing an opportunity to investors to whiten the money while SECP advocates a two-year tax holiday.

Tax experts discourage such amnesty schemes on the grounds these provide an incentive to evade taxes.

Sources said FBR was insisting that these investors should also submit their returns but the investors feared that tax officials might later ask for disclosure of the source of income.

SECP is taking a plea that since there is no capital gains tax on investment in real estate, the investors are taking out their money from the stock market. Since July 2010, the government has imposed CGT on the stock market.

For selling shares before six months of purchase, the tax rate was 10 per cent while for selling after six months but before one year the rate was 7.5 per cent.

SECP Chairman Muhammad Ali said he has proposed to the government that there should be no tax for two years and the government should provide an opportunity to those who made money before levy of CGT but took it away. He said since imposition of the CGT the trading volumes have dropped drastically.

He said before the levy of CGT the government collected up to Rs5 billion from the stock market by charging tax on transactions and now the collection has dropped below Rs500 million. In transaction-mode tax, the brokers were immune from any levy as they used to pass on the tax to the investors.

An FBR official said from July 2010 through June 2011 the government collected Rs418 million on account of CGT. Of this, approximately Rs300 million was paid by individual investors while companies paid only Rs118 million.

Published in The Express Tribune, January 13th, 2012.

Islamabad News Sources -2

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