SECP wants mutual funds exempted from workers fund

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) has called upon the Finance Ministry to exempt pooled-investment and open-ended mutual funds from contribution to the Workers Welfare Fund.

In its recommendations for the Finance Bill 2010, the commission said mutual funds, provident funds, approved pension funds, gratuity funds and superannuation funds are structured as trust in compliance with the commission’s regulatory framework and income tax rules.

“Most of these funds represents the pooled investments and operate as open-ended funds. Necessary relief may be provided by exempting these funds from contribution to the Workers Welfare Fund,” it said in its proposals.

Meanwhile, the Karachi Stock Exchange (KSE) has urged the government to facilitate the equity market by reducing the cost of doing business through eliminating withholding tax.

“Our analysis found out that only two countries in the MSCI Frontier Markets and three countries in MSCI Emerging Markets have imposed a capital gains tax, therefore, as we compete with these countries, the capital gains tax must be rational with our competitors for Pakistan to remain an attractive destination for portfolio investment,” said the KSE in its proposals for the budget 2010/11.

It was suggested to impose a gradual progressive capital gains tax. Initially, the capital gains tax would be charged at a rate of 5 per cent during 2010/11 and would be elevated to a rate of 10 per cent by 2015, both for equity and derivative products.

“Effective from July 1, the capital gains tax for investors should be imposed only where the capital gains fall in the category of short-term capital gain, ie, holding period is less than 180 days,” it was proposed.

“The tax should be applicable on all equity and derivative products, provided that all other withholding and minimum taxes applied on the stock market transactions are removed,î it said.

The was also proposed that the capital gains tax should be applicable only if the holding period is less than 180 days at the time investment is cashed out and the capital gain falls in the category of short-term capital gains.

The KSE stressed upon a substantial increase in the savings and investment rate and urged to introduce incentives to improve liquidity in the market so as to reduce the impact cost, but draw a balance between investing and speculation.

“It is essential that the government should come up with incentives that promote investment in Pakistan, especially in the stock markets of the country, as this will not only bring valuable foreign exchange to the country, but will also result in a higher level of economic activity,” it said.

Source The News