per agreed Financier Participation Ratio (FPR). However, minimum 25% or VaR whichever is higher should be contributed by Financee. Financing terms and conditions are pre-determined by Margin Financee and Margi Financier. NCCPL provides a system to MF Participants for recording and settlement of MF Transactions. Margin financing facility is made available only in Eligible Securities notified by the SECP.
All MF Transactions are based on counter-party risk in a disclosed manner, PSX maintained. NCCPL manages risk management of Financier until settlement of MF transaction. Financier will manage RMS of Financee directly. Securities are delivered in the MF Blocked CDS A/C of Financier.PSX said that presently rate of tax on the gross income of the Financier is 10% without deduction of an expenditure to earn such income. Whereas, in most of the cases the funds are borrowed from financial institution for such MF transactions.
The cost involved in MFS includes financing cost payable to financial institution, trading clearing and depository charges and other administrative cost which render that the amount deducted as advance tax could not be fully adjusted against the tax liability of most brokers leading toward claims for tax refunds that are not time bound It is proposed to reduce the rate of withholding tax on the gross MF transactions. from 10% to 2.5% or the directly attributable expenditure incurred to earn income from MF transaction be allowed as admissible expenditure.
This will help develop the market and will increase tax collection by FBR because 10 years back the size of similar market was many times higher, PSX said. PSX also feel that in order to provide confidence to the local and foreign investors and drive growth of capital market, long term taxation policy (at least for 3 years) for the Capital Market may be announced in the forthcoming national Budget 2018-2019.