KARACHI, June 8: The Karachi Stock Exchange expressed concern over the announcement of 100 per cent increase in CVT and withholding tax on stock market transactions with a collection target of Rs2.9 billion.

In a press release issued on Thursday, the KSE stated that the increase would have serious impact on the stock market trading activities, as it would increase the transaction cost of the investor.

“During the year 2005-06 the exchange collected Rs3.5 billion on account of CVT and other related taxes on the share market as against the target of Rs2 billion, which was 75 per cent more than the targeted amount”, the Exchange stated and added that since the exchange was collecting more than the targeted amount, there was no justification for this increase (in CVT).

The bourse pointed out that after the announcement of federal budget 2006-07, the average daily turnover had declined to 188 million shares from 382 million shares up to June 5, 2006. “If this trend continues, the government, despite increase, will not be able to recover the current year’s collection on account of CVT etc. on shares”, the bourse worried.

It said that the foreign investors also related their portfolio investment with the volume of trading and market capitalisation. Any decrease in that would adversely affect in terms of lesser allocation of foreign portfolio investment for Pakistan’s capital markets.

KSE stated that the government had enhanced its credibility amongst the investors by respecting its commitment on exemption of the capital gains until the year 2007. However, for the stability of the capital market the KSE requested for the extension of this exemption for a further period of five years.

The exchange stated that on behalf of its members and the investors’ community at large, it hoped that the government will announce withdrawal of increase in CVT, extension of capital gain tax, tax rebate to listed companies, exemption on dividend income and compulsory distribution of dividend by listed companies for promoting investments in the country.

Other than that, the KSE termed the federal budget as peoples friendly and growth-oriented with setting aside of Rs435 billion for the Public Sector Development Programme, which represented a sharp 60 per cent rise from Rs272 billion earmarked for the purpose last year. The KSE also hailed the increase in minimum wages of workers from Rs3,000 to Rs4,000 and the announcement of dearness allowance for government employees and reducing the tax slabs for the salaried class.

The exchange also acknowledged with gratitude the acceptance of its demand of one time tax exemption on corporatisation of individual stock exchange membership and hoped that this would help in further professionalisation of the brokerage business in the country. The exchange also observed that the enhancement of limit from Rs150,000 to Rs200,000 for investment in pre-IPOs will not achieve the objective and it should be increased to Rs500,000 to encourage people to save more.