KARACHI: The Finance Ministry is re-evaluating the mechanism to implement the capital gains tax on shares’ trading, said sources in the Federal Board of Revenue (FBR).
In February, the Finance Ministry and members of the Karachi Stock Exchange (KSE) reached an agreement under which capital gains tax would be imposed from July 1, but the rate of tax was not disclosed.
However, after several meetings, members of Karachi bourse proposed 5 per cent rate on the holding of shares below six months, which will be increased to 10 per cent by 2014/15, said the sources.
The scenario has changed after Hafeez Sheikh assumed the charge as adviser to the prime minister on finance, said a tax official.
“The Finance Ministry is now considering eliminating all concessions, including agreed for the stock markets, to make the taxation system equitable,î said the official.
The stock exchange had proposed that the exemption of capital gains tax should be increased to 180 days or more for 2010/11 and 2011/12, 270 days or more for 2012/13 and 2013/14 and 360 days or more for 2014/15 on carry forward of capital losses.
After policy change in the Finance Ministry, the Federal Board of Revenue (FBR) is also seeking maximum benefit of revenue collection by implementing capital gains tax on shares trading, said the official.
Large Taxpayers Unit (LTU) Karachi, one of the major revenue collection arms of the revenue body, in its proposals for the Budget 2010/11, suggested that the initial rate of capital gains tax should be at a flat rate of 15 per cent and the period of retention should be less than 13 months. The assets held for longer durations should be allowed exemption, it was suggested.
At present, capital gains are exempted in the country, while the same are a major source of revenue around the world. Former finance minister Shaukat Tarin had categorically announced that the tax on stocks would be imposed from July 1, 2010 and several meetings were held with the members of the exchange to finalise the mechanism.
It is the need of the hour to tax capital gains, since its taxing will not only create a major additional source of revenue, but would discourage accumulation of wealth within the hands of a few people, said revenue body officials.
The capital gains was allowed exemption for healthy stock activities, keeping in view that it would contribute to improved investment, as well as encourage industrialisation, ultimately helping the national economy to grow at a faster pace.
“Unfortunately, the desired results do not appear. It is a fact that only a few brokerage houses have benefited out of trade in stocks in the past and the trend remains the same to-date,” according to the proposal.
The existing practice adopted at the stock exchanges of the country are more of trading and less investment-oriented, the revenue body officials said, adding, “Change of hand of shares during the day and before being recorded as final transaction at the Central Depository Company is in no way contributing to the real growth of the national economy.”
The brokerage houses have not diverted their respective earnings towards the process of industrialisation, but have further engaged themselves into the activities, which do not contribute much in the shape of taxes, said the officials.
“Exempting this source of income has led to concentration of wealth in a few hands, which is not only against the principal of welfare, but is also hurting the fabric of the society by creating disparity,” the proposal added.
Source The News
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