Budget 2013-14 pakistanhttp://www.dailytimes.com.pk/default.asp?page=2013%5C06%5C08%5Cstory_8-6-2013_pg5_
ISLAMABAD: The corporate sector regulator, Securities and
Exchange Commission of Pakistan (SECP) strongly resisted the tax budget
proposal for 2013-14 of imposing 35 percent tax on mutual fund’s profit on debt
distribution received by corporate entities.
The SECP has warned that this would lead to a temporary increase in the tax revenue but the spillover effect of liquidity crunch due to likelihood of heavy redemptions and decline in investor confidence will have adverse impacts on development of bond markets and business viability of mutual fund industry in the immediate and long-term.
The commission’s chairman informed this in a letter to the tax bosses during a bilateral meeting, which discussed the SECP’s tax proposals on June 3, 2013 for inclusion in the Finance Bill 2013. SECP envisions that the implementation of these proposals will go a long way to foster harmonious development and sustainable growth of investment opportunities in various sectors of the economy.
However, the SECP chairman has highlighted that it has been reported that Federal Board of Revenue has proposed to increase the tax on the distribution received by corporate entities from mutual funds, private equity or venture capital funds out of its income from profit on debt, from existing 10 percent to 35 percent - the normal rate chargeable to corporate taxpayers.
SECP, being a regulator for the corporate sector and capital markets including inter-alia the mutual fund, venture capital and private equity (the CIS) strongly believes that the proposed increase in tax rate for distribution from the CIS on profit on debt received by corporate entities will be detrimental for the growth of the CIS industry which is still at a very nascent stage of development in Pakistan.
Highlighting SECP’s concerns on the proposal, it pointed out that presently corporate entities are the major investors in the CIS industry, holding in particular money market and income funds where they hold 26 percent of asset under management of such funds. The distribution of these funds is currently chargeable to tax at the rate of 10 percent of income.
The Finance Act 2012 had enhanced the taxation on the income received by a banking company from distribution of a mutual fund out of its income from profit on debt, from 10 percent to 25 percent for tax year 2013 and 35 percent from tax year 2014 and onwards. However, distribution from a mutual fund out of its income from profit on debt received by a corporate investor other than banking companies remained at 10 percent.
The spirit behind maintaining the taxation differential between banks and corporate was in consideration of current structure of financial sector which predominantly is banking centric (constituting 88.9 percent of the aggregate assets of Pakistan’s financial sector) which makes it vulnerable to systemic risk. It is therefore, imperative to promote the alternative non-bank financial system to diversify the inherent systemic risk and enhance the resilience of the financial system. For development of the mutual fund industry, as an alternative investment avenue it is necessary to continue the taxation incentive to corporate (other than banks) investors to ensure that investment in mutual funds remains attractive for them. It is also pertinent to mention that the tax on profit on debt is a final tax for all persons except the corporate entities. The FBR proposal of taxing mutual fund’s profit on debt distribution received by corporate entities at 35 percent will lead to a temporary increase in the tax revenue but the spillover effect of liquidity crunch due to likelihood of heavy redemptions and decline in investor confidence will have adverse impacts on development of bond markets and business viability of mutual fund industry in the immediate and long-term.
SECP therefore, strongly resist consideration of the proposal to increase the tax on income received by corporate entities from the CIS distribution out of its income from profit on debt, the letter concluded.
The SECP has warned that this would lead to a temporary increase in the tax revenue but the spillover effect of liquidity crunch due to likelihood of heavy redemptions and decline in investor confidence will have adverse impacts on development of bond markets and business viability of mutual fund industry in the immediate and long-term.
The commission’s chairman informed this in a letter to the tax bosses during a bilateral meeting, which discussed the SECP’s tax proposals on June 3, 2013 for inclusion in the Finance Bill 2013. SECP envisions that the implementation of these proposals will go a long way to foster harmonious development and sustainable growth of investment opportunities in various sectors of the economy.
However, the SECP chairman has highlighted that it has been reported that Federal Board of Revenue has proposed to increase the tax on the distribution received by corporate entities from mutual funds, private equity or venture capital funds out of its income from profit on debt, from existing 10 percent to 35 percent - the normal rate chargeable to corporate taxpayers.
SECP, being a regulator for the corporate sector and capital markets including inter-alia the mutual fund, venture capital and private equity (the CIS) strongly believes that the proposed increase in tax rate for distribution from the CIS on profit on debt received by corporate entities will be detrimental for the growth of the CIS industry which is still at a very nascent stage of development in Pakistan.
Highlighting SECP’s concerns on the proposal, it pointed out that presently corporate entities are the major investors in the CIS industry, holding in particular money market and income funds where they hold 26 percent of asset under management of such funds. The distribution of these funds is currently chargeable to tax at the rate of 10 percent of income.
The Finance Act 2012 had enhanced the taxation on the income received by a banking company from distribution of a mutual fund out of its income from profit on debt, from 10 percent to 25 percent for tax year 2013 and 35 percent from tax year 2014 and onwards. However, distribution from a mutual fund out of its income from profit on debt received by a corporate investor other than banking companies remained at 10 percent.
The spirit behind maintaining the taxation differential between banks and corporate was in consideration of current structure of financial sector which predominantly is banking centric (constituting 88.9 percent of the aggregate assets of Pakistan’s financial sector) which makes it vulnerable to systemic risk. It is therefore, imperative to promote the alternative non-bank financial system to diversify the inherent systemic risk and enhance the resilience of the financial system. For development of the mutual fund industry, as an alternative investment avenue it is necessary to continue the taxation incentive to corporate (other than banks) investors to ensure that investment in mutual funds remains attractive for them. It is also pertinent to mention that the tax on profit on debt is a final tax for all persons except the corporate entities. The FBR proposal of taxing mutual fund’s profit on debt distribution received by corporate entities at 35 percent will lead to a temporary increase in the tax revenue but the spillover effect of liquidity crunch due to likelihood of heavy redemptions and decline in investor confidence will have adverse impacts on development of bond markets and business viability of mutual fund industry in the immediate and long-term.
SECP therefore, strongly resist consideration of the proposal to increase the tax on income received by corporate entities from the CIS distribution out of its income from profit on debt, the letter concluded.
No comments:
Post a Comment