KARACHI - Federal Finance Minister Dr Abdul Hafeez Shaikh says the government has decided to ease rules on capital gains tax to revive trading volumes hit by the imposition of the levy.

“We agree on proposals of the stock exchange to support activity and positive growth,” Shaikh said during his visit on Saturday to Karachi Stock Exchange (KSE). The decision applies from April 1.

KSE suggested that existing two tax bands be cut to a single flat rate, and that levy be paid after it is calculated and certified by National Clearing Company of Pakistan Ltd. Under the SECP proposals the taxpayers would be exempted from declaring his/her source of income till June 2014. Withholding tax (WHT) on the turnover would be abolished and the current CGT rate would be frozen till 2014.

Besides allowing individual investors’ participation in the Margin Trading System (MTS), the apex regulator by amending Securities (Leveraged Markets and Pledging) Rules 2011, allowed 15 per cent cash margin and 10 per cent margin via eligible securities with immediate effect (from Monday).

Moreover, to enhance brokers’ capacity to execute business, the SECP allowed each member of the three stock exchanges to do additional business against a specified collateral amount from their respective Clearing House Protection Funds.

The brokers at KSE would be allowed to do additional business by Rs 50 million (each) against a collateral amount of Rs 10 million. “This would increase the daily market capacity by around 150 million shares,” SECP chairman Muhammad Ali told a well-attended ceremony on “Serving Investors and Industry” held here at Karachi Stock Exchange (KSE) Saturday.

The NCCPL would manage the three Funds as separate pools for each Exchange.

“I do accept these proposals and want the same be operationalised from April 1,” the finance minister told the gathering.

The federal finance minister also assured the SECP chief of his full support on the proposed demutualisation of the country’s stock exchanges on the legislative front.

In his address, the SECP chairman slammed the front regulators, the exchanges, for not playing their due role in proposing financial literacy which he said was the lowest in Pakistan. On SECP’s part, he said, a three-year Investors’ Education Plan was due to be approved next week.

Further, urging the need for “better surveillance” for investors’ protection, Ali said second phase of e-dividend was in the offing in collaboration with the Central Depositary Company while the NCCPL was developing “central data base” that would not only help the exchanges ease out documentation process but also keep check on money laundering.

“We expect this programme to finalise by the end of March,” the SECP chief said.

The SECP decided to revamp the CGT after eventually realising that maintaining status quo on the CGT was not in the interest of the economy as it had adversely impacted tax revenue collection as well as trading volumes at capital markets. .

Agencies add: Earlier, talking of country’s economy, Hafeez Shaikh said during the last six months, tax collection grew by 27 per cent to Rs 840 billion over the same period last year.

He said the GDP growth is expected to around 4 per cent in the current fiscal year based on the improved performance by agriculture sector and industry in the last six months.

“For the first time in the last 24 months, inflation has fallen to single digit (9.6 per cent) after reaching as high as 25 per cent.

This has become possible due to stringent austerity drive of the government and tight monetary policy”, he noted.

He said government has spent only 45 per cent of the allocated portion of its spending during the six months to curtail inflation in the country.

He asked the government to cut its expenditures to bring down poverty.

Expressing his disappointment over the low tax-to-GDP ratio of 9 per cent, he said it was the lowest in the world and added that wealthy people do have a habit of not paying tax while the government is also not in a habit to collect tax.

He noted that country’s exports were growing at 4 per cent while remittances were averaging at $1 billion per month.

Shaikh said that though the economic situation was not comfortable, it was manageable. You should not be worried about the economy.

Referring to current energy crisis, he said this can be a problem area in future.

He pointed out that the government has the resources to pay $1.2 billion to IMF this year and it was incorporated in the budget. So don’t worry, the money is there”, he added.