Brokers urge SECP to review tax rates amid profit concerns

KARACHI: Stock brokerage firms have called on the Securities and Exchange Commission of Pakistan (SECP) to tackle the high taxation rates on brokerage and commission income, which they claim are stifling their profitability and growth.

In a letter addressed to Abdul Rehman Warraich, commissioner of the Securities Market Division at SECP, the Pakistan Stock Brokers Association outlined their concerns regarding the taxation regime impacting their members.

The association highlighted the consequences of recent legislative changes that have led to an increase in taxes on brokerage and commission income, adversely affecting the operations of brokerage firms.

It said the abolition of advance tax under Section 233A of the Income Tax Ordinance, 2001, has inadvertently resulted in the reactivation of tax provisions under Section 233.

This has compelled brokerage firms to deduct advance tax at a rate of 12 percent, significantly impacting their bottom line.

"The reduction of the tax rate on brokerage and commission payments to brokers holds manifold benefits. Not only does it serve to alleviate the escalating costs associated with conducting business for them but it also fosters growth within the stock market," the letter reads.

In another letter to Akif Saeed, Chairman of the Securities & Exchange Commission of Pakistan, stock brokers echoed similar sentiments. They emphasized the disproportionate burden placed on brokerage companies due to the high advance tax rate, which is currently set at 12 percent, and urged for its reduction to a more reasonable rate of 2 percent.

The SECP officials have been urged to take the taxation issues into consideration in the budget proposals for the Federal Budget for FY2025 and provide relief to the stock brokers.

The letters underscore the critical need for regulatory intervention to alleviate the financial strain on brokerage firms

and create a more favourable operating environment within the capital market.

They argue that a reduction in brokerage taxes would not only mitigate the escalating costs of conducting business but also stimulate growth and investment within the stock market.

The proposals put forth by the stock brokers seek to address the inherent challenges posed by the current tax regime. They advocate for a revision of tax policies to ensure a level playing field for brokerage firms and promote the sustainability of the capital market ecosystem.

The SECP is now tasked with deliberating on these proposals and considering their potential implications for the broader financial landscape.

The outcome of these discussions will have significant ramifications for the profitability and competitiveness of brokerage firms in Pakistan, as well as the overall vibrancy of the country's capital market.