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Authorised Capital Tax: A tax even on the idea of thinking corporate

The economic barometer of a country can be measured as shooting downwards where instead of promoting and making it easier for corporates to enter the market place and guarantee the growth and the financial well being of our country; taxation on capital, bureaucratic hurdles, corruption and other official and unofficial delaying tactics have tremendously hampered the growth and development of corporate culture in Pakistan.

With every change of governmental guard, it appears that the new incoming and supposedly expert financial gurus seem intent in degrading the balance sheet of the nation so much, that it is literally now blood red, if it is further allowed to erode to rust red, it would become impossible for Pakistan to save itself from falling down into financial disaster from the brink that it is already standing on. The recent taxation on shares in the new budget is one such example.

The idea of setting up new corporates, unlike other developed and developing countries, is not allowed to flourish in Pakistan because its very concept is killed in its infancy by the anomalous demand of SECP to pay abnormal fees on authorised capital that corporates declare only for the initialising of their businesses.

Very clearly this translates into “taxing the very thought of investors who even dare to dream of creating a corporate in Pakistan”.

This requirement of SECP, seriously damaging one, is an anomaly that discourages the development of the corporate sector through which a culture of transparency, proper accountability, job opportunities based on merit and the representation and elevation of the nation’s well-being is being seriously hampered. In the present situation that Pakistan finds itself there is need to take innovative and extreme measures to turn around the economy at all costs. Instead of putting such high costs for setting up corporate companies, a conducive and corporate friendly business environment has to be immediately created so that instead of shying away, investors are strongly encouraged to set up corporate companies in Pakistan before it is too late.

In the light of the new Chinese companies looking forward to invest in Pakistan, that will pay out huge fees on their authorised capital amount, anomalies are proving to be a big hindrance to them to commit to ventures, that would otherwise greatly benefit our nation.

Other anomalies are the exorbitant listing fees and right issue charges on the face value of shares, irrespective of the fact whether the shares are issued at discount rates or at the face value. The companies that are trying to raise invaluably-needed capital from the international investors and offering discounts on their shares’ face value to attract them are compelled to pay the fees on the face value instead of the actual amount received by them. This is also proving to be a big hindrance towards the efforts to attract foreign capital investment in Pakistan.

To further discourage investors, an Income support Levy Act 2013 has been introduced in the Federal Budget which introduced a 0.5% levy on the net moveable wealth of a person in excess of PKR 1 million. Net moveable wealth includes all assets except land, building, plant and machinery. Liabilities exclusively related to moveable assets shall be deductible for the purposes of levy calculation. For liabilities that are related to both moveable and immovable assets, a proportionate amount of liabilities will be apportioned to moveable assets. This levy is required to be paid along with filing of wealth statement and income tax returns.

The government in this budget should have exempted shares in companies from this levy, as the money provided is essential for creating employment. Act is discouraging people from investing in companies, they would rather go for buying plots of land or other non-productive fixed investments.

During the tenure of a progressively-minded previous Chairman of SECP, prominent investors had approached him to make fundamentally correct changes towards the structuring of the corporate concept to make it possible for new corporate companies to vigorously establish themselves in Pakistan. By abolishing authorised capital fees and by giving feasible incentives, companies and people would be encouraged to pay their taxes with transparency, instead of having to cheat on their obligations in this important matter.

While former SECP Chairman did show the intent to improve things, he expressed his helplessness to amend the system as he realised that the bureaucracy, official and unofficial departments, entities and individuals would have serious reservations and objections to make changes that would instead of serving their vested interests benefit the national exchequer.

Changing the mindset of the corrupt who are allowed to prosper by the corrupt with their undeclared accepted practice of greasing of palms, that matter, is not only difficult but an almost impossible task to undertake.

It is, therefore, the need of the hour for the Finance Minister and the Chairman of Board of Investment, who have the responsibility to attract and safe guard investments in the country to take radical steps that are conducive to business environment fir enabling the corporate sector to play its true role and help better the health of our economy, our youth and the nation as a whole, and not a system that has been mired by corruption that benefits only a few.

Patras Bokhari, "Authorised Capital Tax: A tax even on the idea of thinking corporate," Business recorder. 2013-09-09.
Keywords: Economics , Economic system , Economic policy , Economic issues , Economic growth , Economic inflation , Economic development , Economic planning , Tax-GDP , Tax policy , Budget-2013 , Taxes , Pakistan , SECP