ISLAMABAD: The government looked to appease disgruntled investors of the stock market along with accommodating other sectors as Finance Minister Ishaq Dar delivered his budget windup speech in the lower house of parliament on Tuesday.
Dar granted tax exemptions and announced some new measures that would appease senators, members of the National Assembly and stock market participants.
One of the main beneficiaries of the decisions will be investors of the stock market who have been given relief through the Capital Gains Tax regime (CGT).
To recall, Dar, in his budget speech at the end of last month, announced a flat 15% rate of CGT on sale of shares. The current regime sees rates vary across holding periods, with CGT decreasing as investors hold shares for longer.
However, the flat rate of 15% was seen as a negative by the market, with the KSE-100 Index undergoing massive correction in the wake of the announcement.
On Tuesday, Dar moved to clarify the new regime.
“All shares being purchased before June 30, 2017 will be treated for tax purposes under the old three-tier Capital Gains Tax regime,” announced Dar.
The finance minister also announced lower withholding taxes on import of plastic by commercial importers from 6% to 4.5% and for industrial importers to 1.75%. Dar said that this step was taken on the recommendation of Senate Standing Committee on Finance to discourage tax evasion.
The reality is that PML-N’s Member National Assembly Qaiser Ahmed Sheikh who is also chairman of the NA Standing Committee on Finance had pushed through this budget proposal. Qaiser Sheikh, having stake in the plastic business, had personally attended the Senate Committee to seek its support for his budget proposal.
It is not for the first time that the government has accommodated Qaiser Ahmad Sheikh. In the last budget, the government had also lowered custom duties on chemicals being used by Qaiser Sheikh’s industry.
The lower tax rates would encourage the imports of the plastic material, which may put Engro Polymer at a disadvantageous position. The company is involved in the manufacturing, marketing and distribution of Chlor-Vinyl allied products and PVC.
Although he did not mention it in his speech, the Finance Minister has agreed to exempt the income of National Rural Support Programme (NRSP) from income tax. The government has placed it under section 66 of Second Schedule of the Income Tax Ordinance that deals with the entities enjoying tax free status.
The NRSP is a not for profit organisation registered under Section 42 of Companies Ordinance 1984 and provides small loans.
The Federal Board of Revenue was not in favour of granting income tax exemption to the NRSP. It was overruled.
The government has also made certain changes in the income tax regime dealing with the Non-profit Organizations. On May 26, Dar had proposed in his budget speech that the NGOs that spend more than 15% of the receipts on administration should pay 10% income tax. However, on Tuesday, Dar partially modified this budget proposal. The NGOs would be exempted from the income tax during first three years of their establishment provided their annual turnover is not more than Rs100 million.
The government has also accommodated Senator Talha Mehmood of JUI-F in its final Finance Bill. Dar announced that the wholesale and retail dealers of batteries would be exempted from paying 0.5% withholding tax on their sales. On May 26, Dar had announced to bring batteries under the ambit of nine businesses that would be subject to payment of advance income tax at the time of their sales.
Dar said that the batteries business has been exempted from this tax on the recommendation of Senate Standing Committee on Finance. Senator Talha is the member of the senate standing committee.
Dar also announced that the new flat 15% CGT rate for filers and 20% for non-filers will be applicable to only those shares that are bought and sold on and after July 1, 2017. He said that the old shares will be treated under the previous CGT regime that comprised of three categories.
He also announced that dividend income of mutual funds will be taxed at the rate of 10% instead of the earlier 12.5%. The services tax on Pakistan Stock Exchange and Pakistan Merchandise Exchange was lowered from 8% to 2%, said the Finance Minister.
On listed derivates, the tax rates have been reduced from 15% to 5% for three years.
Dar also announced to cut the proposed 10% income tax on listed companies that do not distribute at least 40% of their after tax profits through cash or bonus share to 7.5%. However, this has not fully addressed the concerns of the companies who believe that the move will discourage capital formation.
The Finance Minister also announced to reduce sales tax on feed gas used in fertiliser manufacturing from 17% to 10%. He also said that the LNG feed gas will be reduced from 17% to 5%.
Published in The Express Tribune, June 14th, 2017.
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