Let there be IPOs The PSX wants more IPOs but has the worst idea to incentivize them
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By Ariba Shahid
n the past we’ve talked about what IPOs are, why companies go for them, and how one can invest. While there are a number of reasons why a business would consider going public, you would assume tax concessions to be least on the priority list. In fact, given that an IPO means a company is doing well and gaining investment, they should logically be up for more taxation. Right? Wrong, because earlier last week, the managing director of the Pakistan Stock Exchange, Farrukh H Khan, said that the PSX is in consultation with the Ministry of Finance and the Federal Board of Revenue to restore tax credit for companies opting for IPOs. “We look forward to constructively resolving this issue with the support of the Ministry of Finance and FBR for the benefit of investors, companies, and Pakistan’s economy,” he
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tweeted. To understand why this is a bad idea and where it is coming from, Profit brings you a brief reminder of what IPOs are, and why giving tax breaks to companies going for them is possibly not the best idea in the world.
What is an IPO again?
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his is simply a refresher - feel free to skip it. As the name suggests and one might intuitively guess, an IPO is when a private company decides to go public and offers people the opportunity to buy shares or stocks in it. Essentially, an IPO happens when a company is looking to gain capital and turns to the general public for it rather than getting a loan from a bank and increasing their debt. It usually means that a company is looking to expand and expand at a certain rate. An IPO is the first time a company is able to sell securities to the public. IPOs are called Primary Markets. Their purpose is
to bridge companies that need funds with investors.
The tax credit explained
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ust a little recap, in the past, the government gave companies tax credit for four years when they would go for listing at the PSX. This also included a 20% tax credit on taxable income for the first two years after listing, and then declining to 10% in the next two years. Right before Budget 2021, in March the government took back this incentive. Tax credit on listings under Section 65C has been withdrawn through Second Amendment Act, 2021. Following the budget, Khan has asked the government on more than one occasion to reconsider its stance on the tax credit. As per Khan, the tax credit alone was resulting in a loss of Rs 100- 150 million. However, he went on to say, “On the other hand, it led to higher collection of revenue through capital gains tax
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