KARACHI: The federal government has decreased the tax rate on services offered by the Pakistan Stock Exchange (PSX) from eight per cent to two percent.
According to the budget document for the fiscal year of 2017-18, “To further improve the performance of the stock exchange it is being subjected to reduced rate of minimum tax at 2.0 percent on its services.”
Presently, services rendered by PSX are subject to eight percent minimum tax, which results in an effective tax rate much higher than the prevalent corporate tax rate. Government reduced the corporate tax rate to 30 percent in the budget for the next fiscal year.
Under the Finance Act 2015, the tax deductible at the rate of 8.0 percent was made minimum tax for providing or rendering services by all the service sector companies.
This minimum tax treatment adversely affected the profitability of the bourse, which is paying higher tax as compared to what it would pay otherwise if it were required to pay tax on profit at an applicable corporate tax rate.
However, after negotiation a reduced rate of minimum tax of 2.0 percent of the gross amount of turnover from all sources has been introduced on freight forwarding, air cargo, courier, manpower outsourcing, hotel, security guard, software development, IT and IT-enabled, tracking, advertising other than by print or electronic media, share registrar, engineering and car rental services.
In January, PSX sold 40 percent of its strategic stake to a Chinese-led consortium at an estimated value of Rs8.96 billion ($85 million) as part of the demutualisation efforts. Out of the remaining 60 percent, 40 percent stake is held by brokers, while 20 percent shares are to be offered to public in an initial public offering (IPO). A specific IPO date has not been specified, but officials said the entire divestment is targeted to be completed by June-end.
The PSX’s official said the development would result in increased profitability of the bourse and would attract even more interest for the public offering.
The stock exchange, in its budget proposals, had urged the government to exempt PSX from the minimum tax regime or alternatively the similar facility of reduced rate of 2.0 percent minimum tax might be provided to PSX on the services provided or rendered by them.
