Islamic Fund Management
121
Issues and Challenges Supply (Sell Side) Opportunities
limit under PR-6 should be amended.
- Amendments to tax laws: transfer of securities to/from
authorised participants to ETFs should not attract any
capital gains tax.
- Amendments by the PSX/SECP pertaining to the
removal of circuit breakers and the breaking up of
marketable lots.
3. Limited foreign investors  The introduction of a structured plan to attract more
foreign investors and the liberalisation of policies for AMCs
to open up their business will provide more opportunities
for the growth of Islamic funds.
4. Small market
capitalisation
 Studies show a correlation between stock market
capitalisation and the growth performance of mutual
funds. This is evident in the case of Pakistan, where equity
funds hold the biggest market share. Although the PSX has
become one of the best performers in South Asia in 2016,
its market capitalisation is still limited. More concerted
efforts are required to encourage the listing of new
companies, particularly those that are Shariah-compliant.
5. Shortage of talent in
Islamic fund management
 The establishment of three centres of excellence for Islamic
finance has, to some extent, filled the knowledge gap in the
overall Islamic finance industry. Nonetheless, more
initiatives should be taken to train professionals and
distributors of Islamic funds, particularly on product
development.
6. Taxation issues and
challenges
 Reduction of withholding tax for AMCs, from 8% to 2% (as
proposed by the Mutual Funds Association of Pakistan
(MUFAP)), should be given consideration by the Federal
Bureau Revenue (FBR) to increase AMCs’ capacity to
operate and offer more competitive products.
 The requirement to obtain an exempt certificate for
exempt entities like mutual funds should be withdrawn, as
the process is operationally cumbersome. In the interim,
tax is withheld while funds end up being owed refunds that
are difficult to extract from the FBR.
 Granting tax incentives to companies listed on the PSX will
help raise the Islamic market’s capitalisation, which would
eventually provide more avenues for Islamic funds to
invest in.
Source: MUFAP (2017), ISRA