FINANCE ORDINANCE ATTRACTING MIXED RESPONSE
May 28 - June 3, 2012
The Finance (Amendment) Ordinance 2012 promulgated by the president recently, has attracted mixed response from people hailing from different walks of life.
Even people within the stock market have mixed feelings but those outside the financial world are questioning why fatties need to be given further protection from scrutiny of the origins of their funds.
This ordinance has suspended certain provisions of the law and consequently the tax authorities would not be able to inquire where money invested in the stock market has come from.
Those supporting the move, including the securities and exchange commission Pakistan (SECP), are of the view that the benefits are clear: money from outside the formal, documented sector will be invested in the stock market, providing a boost to the market and the tax authorities - because the investments will be taxed - and for the ultimate goal of increasing the documentation of the economy.
Encouraging money from the 'informal' or undocumented economy to enter the formal economy is a process that should be encouraged.
A well-functioning and robust stock market is necessary but without additional reforms and changes, analysts believe.
According to them, the capital market in Pakistan had played a positive role in the development and expansion of the economy. Like other sectors of the economy, the capital market has also done remarkably well, although there is a lot of room for further improvement.
They said capital market in Pakistan has witnessed rapid progress through structural reforms in both its institutional setup and operational matters. Although government has an important role to play in shaping the legal, institutional and business environment, major responsibility still rests with the corporate sector to achieve a higher level of corporate governance.
They stressed that high standards of corporate integrity and excellence are of fundamental importance for the development of any capital market. They urged the need to focus on achieving the highest standards of corporate governance, transparency, and professionalism in order to strengthen investors' confidence.
They further said that reforms introduced by the SECP to provide transparency and better governance of the capital market need to be recognized and appreciated, as they would provide solid foundations to attract more investors domestically and internationally.
The reforms introduced in the fields of risk management, governance and transparency have contributed significantly towards the growth and development of capital market, and building of investor confidence, they opined.
They said that greater efforts need to be undertaken for introduction of Islamic products considering the growing global trend towards Shariah-compliant investment alternatives. Additionally, measures should also be taken for development of debt capital markets, commodity and currency markets, mutual fund industry, and real estate investment trusts.
About the Presidential Ordinance, experts said the situation was not conducive for economic growth in Pakistan as industries were closing and shifting to Bangladesh while GDP growth rate was two per cent. In such scenario, the ordinance for stock market investment would temporally improve the situation, they said.
According to them, perception of money whitening through the ordinance about stock market investment was wrong but it would reduce the fear of investors and ensure them that their investment was protected.
They said that economic growth was impossible without capital market growth. The economy could get investments from banks or stock markets and the new ordinance would pave the way for investments, they opined.
In the developed countries, bank deposits are lower than capital market investments while the situation is altogether different in Pakistan, they said.
They observed that the new ordinance would facilitate capital market and the tax collection from stock market would improve by it. They suggested the government to impose the condition of three to five years investments in stock market under this ordinance as investment made through this ordinance would whiten black money.
They said the new ordinance would bring dual taxation in the capital market, capital gains tax, and capital value tax, but it would bring the investor in tax net from day one. They said the existing situation of the country was not favorable for stock market but the ordinance had enhanced the market trading turnover.
On the other hand, opposing the recently promulgated Finance (Amendment) Ordinance, 2012, PML-N senior leader Muhammad Parvez Malik said that the move would open doors for money laundering and legalization of black money by making huge investment in stock exchanges.
He termed the ordinance as the worst example of money laundering, as it would allow legalization of undisclosed income and assets earned through illegal means.
According to him, this ordinance has been specially promulgated to facilitate sitting rulers who would now be in a position to legalize their black money by investing in stock exchanges.