SECP seeks clarification of ITO section

Request comes in light of adverse impact of law on capital market

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has asked the Federal Board of Revenue (FBR) to present a clarification of Section 37 of the Income Tax Ordinance (ITO) regarding the Sindh High Court (SHC) verdict pertaining to capital gains tax (CGT) on listed companies.

The SECP’s request came in light of an adverse impact of the court’s decision on the capital market. In a letter penned to FBR Chairman Shabbar Zaidi, SECP Chairman Farrukh Sabzwari pointed out that SHC’s decision regarding CGT on listed companies had devastated the capital market.

According to the ITO 2001, shares of unlisted companies are considered shares while those of public companies are treated as securities after their reclassification following their listing at the stock market. The change consequently altered conditions and implications for taxes. As per ITO Section 37, the nature and rate of CGT on shares of unlisted and listed companies would also differ while shares of the public and listed company will be considered as securities from the date of their purchase according to Section 37a.

National Clearing Company of Pakistan Limited (NCCPL), which collects capital gains tax on shares, has determined the value of shares for CGT based on this formula in accordance with Section 37a of ITO 2001.

On March 4, 2016, the SHC, in its order pertaining to Khalid Mansoor, FBR and others, ruled that only shares purchased after listing of the company would be considered as securities while those purchased before listing would not be considered as securities and would entail CGT as per Section 37a of ITO applicable to shares.

Published in The Express Tribune, July 17^th, 2019.

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