CGT on shares bought before July 1: Senate body

ISLAMABAD: The Senate Standing Commi-ttee on Finance on Friday unanimously recommended to the government to cancel its agreement with the Karachi Stock Exchange and collect Capital Gains Tax (CGT) on sale of shares from July 1 regardless of whether stocks were purchased before or after July.

The recommendation, if accepted by the lower house of parliament during the budget passage exercise, will expose all those shares to tax which were bought before July 1 and are sold before one year of their purchase.

The standing committee reached a consensus on the issue after Pakistan Muslim League-Nawaz Senator Ishaq Dar threatened to resign from the committee.

“If the government allows tax exemption on purchase of shares before June 30, then there is no point in imposing CGT for the next five years,” he said.

According to Dar, there is no need for an exemption on purchase of shares until a certain date as the basis of the tax is sale of shares. “If they don’t want to pay CGT, they should come out of the market by selling their shares before July 1, 2010,” he said.

The debate got heated up after Federal Board of Revenue member, Asrar Rauf said that former finance minister Shaukat Tarin had signed a Memorandum of Understanding (MoU) with the stock market that allowed a tax exemption for all shares which were purchased before June 30 this year.

This angered Dar who said that the MoU signed between the government and stock market high-ups was not binding on parliament.

He said that when he was serving as the minister of finance he wanted to impose the CGT on sale of stock market shares from July 2009. He said “after I resigned a special plane landed in Islamabad which returned after assurances of continuing with the exemption.”

According to the existing deal with the KSE, the government had agreed to levy a 10 per cent CGT on sale of shares within six months of their purchase and a 7.5 per cent tax on shares held for six and 12 months.

The Federal Board of Revenue has estimated that the KSE would generate Rs5 billion in taxes during the next fiscal year if the market was traded around 10,000 points.

The Committee also recommended that pensions of retired government employees be increased by Rs1,000 to Rs4,000. The finance ministry said that if the proposal was accepted it would cost the exchequer Rs4 billion.

An increase in the minimum wage to Rs9,000 per month from the present Rs7,000 was also proposed by the committee, however, Senator Sugra Imam and Senator Islamudin Sheikh opposed the proposal, terming the raise anti-industry.

Published in the Express Tribune, June 12^th, 2010.