ISLAMABAD: Keeping in view current stock market situation, the Securities and Exchange Commission of Pakistan (SECP) and Federal Board of Revenue (FBR) are working on a key budget proposal for reducing capital gains tax (CGT) rates for two years on disposal of listed securities in budget (2020-21).

Sources told Business Recorder here on Tuesday that the tax authorities and high ups of the SECP have discussed the proposal for next fiscal year. During ongoing budget preparation exercise for 2020-21, the budget markets are reviewing the said proposal to attract investment in stock market.

In due consultation with the stakeholders and detailed deliberations the Securities and Exchange Commission of Pakistan (SECP) has shared with the Federal Board of Revenue (FBR) some key tax proposals considered to be critical for capital markets and corporate sectors. The proposal shared are only at a preliminary stage of discussion with FBR. The SECP had a first round of discussion with FBR officials and the next round of discussion will follow. None of them have been finalized or approved, senior government officials revealed.

Following are the key budget proposals under discussion between the FBR and the SECP relating to the corporate sector:

1. Addressing anomaly created in definition of security u/s 37A for computation of capital gains tax on listed securities. Required clarity has been requested for.

2. For unlocking potential of Private Funds, proposals to allow perpetual pass through status to all categories of private funds has been proposed. Further, considering revamping of regulatory regime and introduction Private Funds Regulations, 2015 consequential changes are requested in the Income Tax laws. 

3. Proposal for promoting documented REIT structures is aimed at addressing short term and inadequate tax incentives for the real estate sector through REITs. These include allowing perpetual pass through status covering all categories of REITs, granting exemption from capital gains, taxation of dividends from REITs and advance tax on transfer of property.

4. Reduced cost of doing business in the insurance sector is essential for increasing growth and penetration. Insurance enables risk mitigation and addresses financial fragility issues, taxation at federal and provincial levels on insurance is proposed to be rationalized. FBR’s support is sought for proposals relating to provincial taxes and exercise duty with the committee, constituted to inter alia look into the harmonization of provincial taxes.

5. Proposal for development of regulated commodity market by addressing the issue of withholding tax u/s 153 on physical settlement. Applicability of withholding tax on sale of commodities in case of physical settlement of trades through Pakistan Mercantile Exchange platform is proposed to be exempted. 

6. Inequality of taxation between incorporated and unincorporated businesses is discouraging corporatization and documentation. Different options are being considered for reducing this inequality over a period of time.

7. Considering the market condition, reducing CGT rates for 2 years on disposal of listed securities is proposed to be looked into. Also restoring distinction

between short-term gains and long-term gains. The SECP and FBR are working on several aspects of these proposals in close coordination, top officials added.