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Proposals of Lahore stock exchange for Budget 1993-94.

Dividends: At present 10 per cent withholding tax is charged on the dividend income. The tax on dividend income amounts to double taxation. It is, therefore, proposed for the development of the stock market that dividend income should be exempted from tax.

Capital Gains Tax: Capital gains tax should be exempted upto June 1995. It is recommended that this rate should also be fixed for further period of five years.

Tax on Bonus: The exempted on bonus should be consistent with the dividend and capital gains.

Investment Allowance to Individuals: It is recommended that individual investors be given investment allowance for investment in equity.

Removal of Tax on Modaraba Companies: Modaraba companies were introduced as an Islamic concept of investment. In Modaraba Companies Ordinance/procedures initially announced. The income on such Modaraba companies were totally exempt from Income Tax. In contravention of the guarantee, 25 per cent Income Tax was imposed in the federal budget 1992-93, which depressed the Modaraba certificates activity on the stock market and had negative effects on the Islamic mode of financing concept. In view of this it is demanded that this tax should be withdrawn.

Removing the Problems of Textile Sector: The textile sector is the largest sector in Pakistan, its sentiment effects the other sector on the stock market. The textile sector has been facing problems for some time. In fact, the problems faced by the textile industry is inter-conflicting in the sense that one man's meat is another man's poison. The solution of yarn industry becomes a problem for the weaving industry and as such it is very difficult to identify the real problem and its solution, which can satisfy the entire textile sector. Government has recently established a task force which alone is not sufficient. Infact among agriculture as well as industrial sector textile dominates the entire economy of the country. It is proposed that a separate textile ministry should be created which should deal with the problems of the industry from growing of cotton to the export of finished goods, under one window.

Special Credit Lines on Soft Terms for the Member of the Stock Exchange: At present stock market is facing liquidity crunch. In order to make the stock market more liquid, special credit lines on soft terms be provided to the members of stock exchanges. In emerging stock market of the Far East the rate ranges from 4 to 6 per cent.

* Over draft limits of the members of stock exchanges against share be enhanced and margin should not be more than 20 per cent.

* It is generally noted that borrowing charges are very high in the country, which hamper the growth of business and industry. It is proposed that borrowing charges be cut down significantly by curtailing the expenses of banks and financial institutions.

Continuation of policies regarding privatisation, deregulation, disinvestments the policies of the previous regime be continued and be implemented through the stock exchanges by the present interim national government so that investors confidence be restored.

Quota Fixation of DFI's Share Business: Lahore and Islamabad stock exchanges developing stock markets of the country and they are deprived of institutional support specially from NDFC, ICP, PICIC, and other DFI's. They should be instructed to give a fair share of business to the members of the upcountry stock exchanges.

Compulsory Listing of Companies at all the Three Stock Exchanges: For the development of less developed stock exchanges of the Lahore and Islamabad it should be made mandatory for the companies to list at all the three stock exchanges of the country.

Problems Faced by the Holders of Foreign Exchange Bearer Certificates (FEBC): The overseas Pakistani are playing a vital role in the economic development of Pakistan by remitting precious foreign exchange through legal channel of FEBC's instead on "Hundis".

An important aspect of the FEBC scheme is that the holder of an FEBC can under the rules encash his certificates from any authorised office. These authorised offices re-imbursed the encashment made by them by the State Bank branch which issued those particular certificates i.e. if the FEBC were issued by the State Bank Karachi then the authorised office would present them to Karachi for reimbursement, and if they are issued by the State Bank Lahore, then the reimbursement would be made by the State Bank Lahore. This procedure creates some problems for the investors which result in hardship and inconvenience. For example if an holder of certificate issued by the State Bank Karachi presents the certificate at some authorised office at Lahore the authorised office show reluctance in encashing it on the plea that they would have to send these certificates to Karachi, which will take time and their money would be stuck up.

In order to remove the encashment and reimbursement problems, it is proposed that the following proposals be implemented:

* In order to remove the encashment and reimbursement problems in upcountry, it is suggested that authorised offices for issue of FEBC such as Habib Bank Limited, United Bank. Allied Bank failing within the jurisdiction of the State Bank Lahore should collect their stocks of FEBCs from the State Bank of Pakistan Lahore. The certificates issued by the SBP Lahore and presented for reimbursement by the local banks could be reimbursed within 24 hours.

* The SBP branches at different places should reimburse the authorised offices of all certificates encashed by them they should then make internal adjustment.

The Lahore Stock Exchange has proposed that the State bank should issue a circular to all authorised offices of issue of FEBC reiterating to strictly comply with the rules and procedures of the certificates, which provide immediate encashment on presentation of certificates if the same were properly issued from any authorised office of issue and otherwise in order.

* It is proposed that the commission paid by the Government to the authorised offices at the issuance of FEBC be splitted in two phases, 50 per cent commission paid at the time of issuance and remaining at the time of encashment of FEBCs.
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Publication:Economic Review
Date:Apr 1, 1993
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