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August 26, 2010
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Asset management companies to deduct CGT at source, intimate unit-holders

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August 26, 2010

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KARACHI: Most of the asset management companies (AMCs) have dispatched letters to their unit-holders, informing that all gains on sale or redemption of investment units would be liable to the capital gains tax (CGT).
“All mutual funds are liable to deduct and collect tax at source on any capital gain made on the sale or redemption of units from July 1,” said Faisal Malik, Senior Vice President, MCB Asset Management Company.
According to the Finance Act 2010, all mutual funds and collective investment schemes are subject to capital gains tax. Capital gain is the excess amount received by the unit-holder on redemption of units over the actual cost.
Capital gains tax has to be charged at an initial rate of 10 percent for two years on stocks, held for less than six months, and 7.5 percent on stocks, which are held for more than six months, but less than a year.
The capital gains tax would not be charged where holding period is over 12 months.
Pakistan’s tax-to-gross domestic product (GDP) ratio of around nine percent is one of the lowest in the world and former finance minister, Shaukat Tarin, had said that the government aimed to raise it to at least 15 percent in the next three to four years.
Initially, the Karachi Stock Exchange (KSE) had recommended a five percent capital gains tax in the fiscal year 2010/11, going up gradually to 10 percent by 2014/15.
The agreement on tax was reached after series of meetings by the policy makers and strong resistance by the brokers and investor community.
The Karachi Stock Exchange management and the ministry had agreed that the tax would be increased by 2.5 percent after two years on stocks held for less than six months.
It will be increased by 0.5 percent on shares held for more than six months, but less than a year.

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