Pakistan’s Securities and Exchange Commission of Pakistan (SECP) has submitted proposals to the Federal Board of Revenue (FBR) for the upcoming 2024-25 budget. These proposals aim to facilitate the corporate sector and promote ease of doing business.
Key Proposals:
- Reduced Withholding Tax on Dividends: The SECP proposes a reduction in withholding tax on dividends distributed by companies. This aims to encourage corporatization and potentially generate more tax revenue in the long run.
- No Withholding Tax on Bonus Shares: The SECP seeks to abolish withholding tax on bonus shares issued by companies. This would eliminate unnecessary upfront tax burdens for investors.
- Lower Tax Rate for Non-Banking Microfinance Companies (NBMFCs): The SECP recommends a lower tax rate for NBMFCs. This would enable them to offer more affordable financial services and promote financial inclusion.
- Reduced Withholding Tax on Modarabas: The SECP proposes reducing the withholding tax rate on Modarabas (Islamic financial institutions) from 8% to 3%, aligning it with other service sectors.
SECP’s Rationale:
- Promoting Corporatization: A lower withholding tax on dividends could incentivize businesses to operate as corporations, leading to better documentation and potentially higher tax revenue for the government.
- Stimulating Capital Market Growth: Eliminating withholding tax on bonus shares is seen as a way to encourage companies to issue them, potentially boosting the capital market.
- Enhancing Financial Inclusion: Lower taxes for NBMFCs could allow them to offer more affordable services, expanding access to financial products for a wider population.
- Fairer Tax Treatment for Modarabas: Aligning the withholding tax rate for Modarabas with other service sectors would create a more level playing field.
Looking Ahead:
The FBR will review the SECP’s proposals alongside other budget recommendations. Whether these suggestions are implemented will depend on the government’s overall fiscal strategy. However, these proposals highlight the importance of creating a tax environment that facilitates business growth and financial inclusion in Pakistan.
