The government is finalizing tax incentives to attract foreign investment, facilitate the corporate sector, development of the capital market, documentation of the real estate sector and promote the real estate investment trusts (REITs) in the budget (2021-22).
During the ongoing budget exercise, the Federal Board of Revenue (FBR) has decided to incorporate certain proposals of the Securities and Exchange Commission of Pakistan (SECP) in the upcoming budget (2021-22).
The FBR is presently reviewing the budget proposal of the SECP for incorporation in the Finance Bill, 2021.
According to the SECP budget proposals received at the FBR House, to create a level playing field and promote the development of regulated non-bank financial market and corporate sector, the SECP every year collects, reviews and submits tax proposals relating to its regulated sectors to the FBR.
Considering tax impediments for regulated sectors, the lowest ranking of the index of paying taxes under the World Bank’s Ease of Doing Business Report, 2020, and the tax reforms agreed by the federal government under the Capital Market Development Plan and Future Roadmap 2020-2027, critical tax proposals have been submitted to the FBR.
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The policy-related proposals focused on removing tax anomalies relating to the REITS structures for documenting the real estate sector by promoting REITs; unlocking the potential of private funds by leveling tax filed, and addressing disadvantageous treatments, and extending tax credit to newly-introduced portfolio investment product of Exchange Traded Funds (ETFs).
The SECP has proposed the non-applicability of additional CGT on foreigners. The proposal is to exempt foreign investors from the applicability of 100% additional tax in case their name is not appearing in the Active Taxpayers List (ATL) in the Tenth Schedule.
Presently, 44% of total foreigners investing through PSX are currently not appearing in ATL list as a result of which they are subject to Capital Gain Tax (CGT) @ 30%.
For such investors who do not have any other source of income in Pakistan except capital gains, should not be subject to additional 100% tax for not being in the ATL Align it simplified tax regime for Roshan Digital Account (RDA) holders, wherein tax rate applicable for persons appearing on ATL will be charged to RDA holders.
Foreigners may be subject to taxation in their home country being resident taxpayers therefore, balanced taxation of their income in Pakistan is essential. The rationale taxation of foreigner’s income from the investment will result in an inflow of foreign exchange, boosting foreign exchange reserves of the country. it would broaden the investor base of capital markets and more liquidity to capital markets by luring
foreign investors.
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Foreigners represent approximately 5% of overall capital market investors trading and removing additional tax will not materially impact tax revenue and fresh investments will result in further tax revenue, in case tax incentives are provided, SECP added.
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