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| Govt to impose CGT on capital market |
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Friday, April 11, 2008
LAHORE: The government has decided to impose Capital Gain Tax (CGT) on capital market transactions in order to increase its tax revenue to meet the growing expenses, The News has learnt.
The government has focused on the earnings of the capital market, as it will be the main taxpayer of CGT. This may generate over Rs100 billion in revenue for the government.
However, the rate of CGT on the capital market is under discussion sources said, adding that there were several proposals for the imposition of CGT on short-term and long-term investments in the capital market. “The imposition of 0.5 per cent to 1 per cent CGT is mostly discussed in both, the ministry of finance and Federal Board of Revenue (FBR)”, the sources remarked. This measure is in line with the stated policy of this government, to generate revenues from affluent sections of society.
The KSE in its budget proposals for the fiscal year 2008-09, had demanded extended exemption in CGT in the shares market up to June 30, 2013, which is going to expire on June 30, 2008. Thus, another five year tax holiday for the capital market had been recommended by the capital market players.
The KSE also pointed out that imposition of capital gains tax on banks for trading activity, has led to a significant decrease in the stock market volumes.
Sources in the FBR said that there were many reasons for the imposition of CGT other than revenue generation. “The government wants to end speculation from the capital market, so the imposition of CGT will be used as a tool to end the speculation,” they remarked.
The sources further said that the government wants to increase long term investments, and for this, it had proposed that an extension in the exemption should be subject to a holding period of securities for three months. In the case of holding of investment in stocks for less than three months, the gain may be taxed.
Sources further mentioned that one of the proposals received by the board stated that investments exceeding one year, be taxed at a reduced rate of 10 per cent, and in short term investments of up to one year, normal rates be charged as in the case of banking companies.
The market capitalisation from 2000 to 2005 has increased by 602 per cent to stand at Rs2304 billion. This percentage increased in 2007 and came up to 1000 per cent, whereas, the paid up capital of listed companies increased by only 150 per cent up to the year 2007.
As per the Economic Survey of Pakistan 2006-07, it mentioned that the income tax revenue of Rs112 billion is sacrificed for the exemption of CGT, which adversely affects the tax on GDP ratio only.
The capital market, interestingly, has been enjoying the exemption of CGT on securities trading business since 1974.
When contacted, member direct taxes FBR, Usman Khalid Mirza said recommendations were under review for the imposition of CGT.
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ISSN 1563-9479 
