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Temporary Tax Exemption for Venture Capital Companies

ISLAMABAD (June 02 2006): The government is likely to give exemption of income tax for a specific period to the venture capital companies (VCCs) in the upcoming budget to encourage listing of new companies.

Sources told Business Recorder on Thursday that the Central Board of Revenue (CBR) has drafted a proposal for the Ministry of Finance to give income tax exemption for a specific period from the date of establishment to VCCs. Although exemption is available to the venture capital companies established till June 30, 2007, the proposal to grant exemption for a specific time period would be considered in Budget 2006-07.

The sources said that steps are being taken under the government's fiscal measures to improve long-term capital formation under Financial (Non-Banking) Markets Governance Programme (FMGP) in the country.

Presently, the venture capital companies are providing investment to the new listed companies on the stock exchanges. Instead of taking loans, the companies offer their shares to the VCC for encouraging investment. The VCCs play a key role in helping the listed companies carrying out their businesses.

CBR is also considering to equalise the withholding tax rates of government securities with National Saving Schemes (NSS), Term Finance Certificates (TFCs) and bank deposits from next fiscal.

The concessional tax regime for investments made for less than 1-2 months will be discontinued from July 1, 2007. The CBR may announce a 'holding period' for the investors in the coming budget.

It may be recalled that the government had signed an agreement with Asian Development Bank (ADB) for obtaining $260 million loan on 15 years term period to support the financial sector reform agenda, development of capital markets and other non-bank financial services.

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