All you ever wanted to know about CGT, but were too afraid to ask
KARACHI:
After the Capital Gains Tax (CGT) implementation was made official in last week’s budget announcement, certain areas still remained grey.
Details were unknown and investors were concerned. JS Global Capital’s analyst Mustafa Bilwani met with tax officials to get answers to some of the questions.
Will CGT be applicable to cash settled futures and deliverable futures?
Yes, CGT will be applicable to both cash settled futures and deliverable futures, as these terms are covered in the definition of redeemable capital.
Will CGT be applicable to unit holders on redemption of income and balanced funds?
Yes, it will be applicable to unit holders on redemption of both income and balanced funds.
Will borrowed cost and incidental expenses be adjustable when calculating the CGT?
Taxpayers may adjust the borrowing cost from the capital gains for securities purchased through borrowed capital or by way of pledged borrowing. Further, other verifiable expenses such as interest cost, salaries, telephone expenses, et al incurred exclusively in the process of earning capital gains will also be allowed.
Will advance tax be applicable to individuals (under Section 147)?
Advance tax will be applicable to individuals whose income exceeds Rs500,000 per annum.
What will be the method of valuation under the CGT regime; first in first out (Fifo) or last in first out (Lifo)?
The matter is still under discussion. One of the methods under consideration for implementation from July 1, 2010 is FIFO. However, a final decision regarding the exact method is yet to be made.
What will be the treatment of bonus/right shares?
As there is no cost of bonus shares, issuance of such shares (bonus, rights) reduces the cost of shares held. Implementation of Fifo method will aim to neutralise the benefit, as partial selling of original expensive shares at a loss will be offset with the eventual sale of shares acquired at zero (bonus) or low cost (rights).
Published in the Express Tribune, June 12th, 2010.
After the Capital Gains Tax (CGT) implementation was made official in last week’s budget announcement, certain areas still remained grey.
Details were unknown and investors were concerned. JS Global Capital’s analyst Mustafa Bilwani met with tax officials to get answers to some of the questions.
Will CGT be applicable to cash settled futures and deliverable futures?
Yes, CGT will be applicable to both cash settled futures and deliverable futures, as these terms are covered in the definition of redeemable capital.
Will CGT be applicable to unit holders on redemption of income and balanced funds?
Yes, it will be applicable to unit holders on redemption of both income and balanced funds.
Will borrowed cost and incidental expenses be adjustable when calculating the CGT?
Taxpayers may adjust the borrowing cost from the capital gains for securities purchased through borrowed capital or by way of pledged borrowing. Further, other verifiable expenses such as interest cost, salaries, telephone expenses, et al incurred exclusively in the process of earning capital gains will also be allowed.
Will advance tax be applicable to individuals (under Section 147)?
Advance tax will be applicable to individuals whose income exceeds Rs500,000 per annum.
What will be the method of valuation under the CGT regime; first in first out (Fifo) or last in first out (Lifo)?
The matter is still under discussion. One of the methods under consideration for implementation from July 1, 2010 is FIFO. However, a final decision regarding the exact method is yet to be made.
What will be the treatment of bonus/right shares?
As there is no cost of bonus shares, issuance of such shares (bonus, rights) reduces the cost of shares held. Implementation of Fifo method will aim to neutralise the benefit, as partial selling of original expensive shares at a loss will be offset with the eventual sale of shares acquired at zero (bonus) or low cost (rights).
Published in the Express Tribune, June 12th, 2010.