The Pakistan Stock Exchange (PSX) has urged the federal and provincial governments to raise the issue of jurisdiction differences among provinces over the collection of sales tax on services at the Council of Common Interest (CCI), anticipating the credible body would amicably devise “a (revenue) sharing formula for each province” to settle the grave matter of concern.

The bourse said that provincial sales tax is applicable on services including fund and assets management.

“The wordings of the laws enacted by the Sindh Revenue Board, Punjab Revenue Authority and Khyber Pakhtunkhwa Revenue Authority are overlapping as the law governing Sindh Sales Tax enacted by Sindh Revenue Board states that sales tax is to be provided where business is registered while Punjab Sales Tax on Services Act, 2012 and Khyber Pakhtunkhwa Finance Act 2013 states that the province where taxable services are provided or rendered by the service provider is entitled to levy, charge and collect sales tax on such services.

“We (PSX) request that this issue, being of equal relevance to all the provinces and affecting the entire services sector, may be placed on the agenda of the Council of Common Interests so that a sharing formula for each province can be devised to resolve this matter,” the set of budget proposals reads,“ the bourse statement said.

The three provinces collect sales tax on services at the standard rates in the range of 15-16% of the value of the services rendered. But in the case of the telecommunication services, some provinces charge the tax at the rate of 19.5%.

The management of the stock market highlighted the issue in its set of budget proposals for FY26 already sent to the Ministry of Finance, as the dispute over collection of the sales tax on services is “affecting the entire services sector” including the firms listed at PSX.

The stock market facilitated trade in shares of around 550 companies having a total market capitalisation of Rs14.73 trillion (around $52 billion, or 12.7% of Pakistan’s gross domestic product (GDP) of FY25), it was learnt.

Elimination of minimum tax recommended

PSX further requested that “minimum tax regime should be eliminated from listed companies as such companies are strongly compliant towards specific documentation requirements of various statutes”.

It elaborated that the minimum tax on listed companies discourages documentation of the economy.

Listed firms already meet extensive regulatory requirements, including audits, tax filings, advance tax payments, and withholding statements, ensuring their accounts align with statutory norms and build trust with authorities.

“However, the levy of minimum tax puts a downward impact on the earnings of listed companies despite having current and brought forward losses.”

PSX also proposed enhancing tax credit for listed small and medium enterprises (SME), as they contribute immensely to Pakistan’s employment, exports and GDP growth, and provide 80% of all employment in the country.

“In order to encourage small and medium enterprises to get listed on the SME Board, it is proposed that the rate of tax for such listed SME companies be permanently lowered by giving tax credit of 50% of tax payable for 3 to 4 years of listing and then onwards 20% of the tax payable,” it proposed.

Besides, it requested to align rates of capital gains tax (CGT) on disposal/sale of securities with rates of CGT on sale of immovable property, align rates of CGT for all derivatives and future contracts traded on PSX with future commodity contracts traded on Pakistan Mercantile Exchange (PMEX), document real estate sector and promote Real Estate Investment Trusts (REITs), and proposed tax relief for foreign investment flows at PSX.

To encourage more companies to get listed at PSX, it urged the government to expedite digitisation of the payment system and documentation of the economy through deploying the technology, as “estimates of the cash-based economy range from 35% to 50% of GDP”.

Source: Business Recorder.