Pakistan Budget proposals 2011-12

SECP recommends to reduce WHT rate in budget

* WHT rate on gold at import stage be reduced from 1.0% to 0.1%, if imported through Pakistan Mercantile Exchange Limited

By Sajid Chaudhry

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) in its budget proposals 2011-12 has proposed to the budget makers to reduce the withholding tax (WHT) rate on gold at import stage from 1.0 percent to 0.1 percent, if imported through Pakistan Mercantile Exchange Limited, tax credit for enlistment on a sock exchange in Pakistan and exemption of Capital Gains Tax (CGT) on gain on sale of any instrument of redeemable capital.

Proposed amendment: Clause (13G) (iv) of Part II of Second Schedule to the ITO, 2001; 13G Tax under Section 148 on the following item shall be collected at 1.0 percent of their import value as increased by customs duty, sales tax and federal excise duty, if any levied thereon: gold; mobile telephone sets; silver; provided that if gold is imported by any corporate member of any Commodity/Mercantile Exchange of Pakistan (the Commodity/Mercantile Exchange) for the purpose of trading at the Commodity/Mercantile Exchange then tax under Section 148 on the import of gold shall be collected at the rate of 0.1 percent of the import value.

Rationale for the proposal: The tax on import of gold was imposed in fiscal year 2006-07 at 1.0 percent of the import value. Since the imposition of this tax, the volume of gold imported through proper channel has decreased drastically and the amount of tax collected under this head is also insignificant.

Existing provision: Clause (13G) (iv) of Part II of Second Schedule to the ITO, 2001; 13G Tax under Section 148 on the following item shall be collected at 1.0 percent of their import value as increased by customs duty, sales tax and federal excise duty, if any levied on gold; mobile telephone sets and silver. It is proposed to tax the gold at the import stage at of 0.1 percent of the import value provided that the gold is imported by a corporate member for trading at the Commodity Exchange. The proposed reduction in tax rate will encourage legally imported gold viable to compete with illegally imported gold. As the Commodity Exchange provides a regulated market place to buy and sell gold at transparent market prices, it would discourage manipulation by gold traders in the open market. It would promote documentation of trading of gold, in comparison to the current huge parallel economy in undocumented trading and resultantly, would increase government revenues from documented import of gold.

Tax credit for enlistment on a stock exchange in Pakistan: Proposed amendment: Section 65C of Income Tax Ordinance, 2001 where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan, a tax credit equal to 15 percent of the tax payable shall be allowed for the tax year in which the said company is listed and subsequent four tax years.

Existing provision: Section 65C of Income Tax Ordinance, 2001 where a taxpayer being a company opts for enlistment in any registered stock exchange in Pakistan, a tax credit equal to 5.0 percent of the tax payable shall be allowed for the tax year in which the said company is listed.

Rationale for the proposal: The existing tax credit incentive to a new listing company makes effective tax rate of 33.25 percent only for one year. The amount of this tax credit for enlistment is proposed to be raised to at least 15 percent of the tax payable, which will mean an effective tax rate of 29.75 percent instead of 35 percent. Further, the tax credit should be for at least first five years of enlistment.

Exemption of CGT on gain on sale of any instrument of redeemable capital:

Proposed amendment: Clause 110 of Part I of Second Schedule of Income Tax Ordinance is any income chargeable under the head ‘capital gains’, being income from the sale of any instrument of redeemable capital as defined in the Companies Ordinance, 1984 (XLVII of 1984), listed on any stock exchange in Pakistan derived by a taxpayer up to tax year ending on the thirtieth day of June, 2013.

Rationale for the proposal: In order to develop corporate debt and the Sukuk market, the CGT applicable on gain on sale of the instruments of redeemable capital like TFCs, PPTFCs, Sukuk may be exempted till 2013.

Source: www.dailytimes.com.pk