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January 24, 2019

CGT collection declines 83 percent


January 24, 2019

KARACHI: The sale of securities at the Pakistan Stock Exchange showed dismal performance, as the capital gain tax (CGT) sharply declined by 83 percent during the first half of the current fiscal year.

The CGT collection declined to around Rs1 billion during July–December of the current fiscal year, compared with Rs6 billion in the the corresponding period of the last fiscal year, sources at the Large Taxpayers Unit (LTU) Karachi said on Wednesday.

The PSX has been ranked at the world’s 5th worst performing market to end the year 2018.

The sources said massive deterioration in the stock market hampered the CGT collection.

Equity analysts said the market continued the declining trend for the second consecutive year, down eight percent in 2018.

This fall in two successive years is after a period of 22 years. Besides, market capitalisation, the PSX lost $26 billion in 2018.

The National Clearing Company of Pakistan Limited (NCCPL) has been authorised to collect advance CGT on behalf of the Federal Board of Revenue (FBR) under Section 147(5B) on quarterly basis.

The capital gain tax rate is two percent of the capital gains derived during the quarter, where holding period of a security is less than six months.

Similarly, 1.5 percent of the capital gain in a quarter is applicable where holding period of a security is more than six months, but less than 12 months.

The NCCPL is required to pay advance tax to the FBR within 20 days after the close of a quarter. However, advance tax is not applicable on individual investors.

The sources said due to sharp decline in capital gain tax , the government was considering providing some relief to promote stock market.

In a recent meeting with Prime Minister Imran Khan, the PSX proposed several measures to improve confidence in the stock market. Such measures included abolishment of advance tax on the sale and purchase of shares; allowing carry forward of capital losses up to three years; and rationalisation of capital gain tax on equities in line with the real estate.

Finance Minister Asad Umar during his latest visit to the Karachi Chamber of Commerce and Industry (KCCI) hinted that the government was willing to resolve the problems being faced by the stock market.

Sources in the Finance Ministry said the government would announce relief measures through a reform package on January 23, 2019 to attract investments into the equity market.

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