FBR amends rules to lift stock trading

Clarity emerges on Capital Gains Tax calculation.

KARACHI:

The Federal Board of Revenue (FBR) has issued draft amendments in the Income Tax Rules pertaining to the Capital Gains Tax (CGT) on Friday in a bid to lift activity at the stock markets.

In the earlier rules, the broker was supposed to close the account of the client only after getting tax clearance certificate from tax authorities and in case the client disappears without paying tax then the broker was liable.

The broker has been relieved of these duties as they don’t hold information about how many different brokerage firms the client is dealing with, according to the new draft amendments. The FBR will now directly obtain information regarding market participants from National Clearing Company of Pakistan Limited (NCCPL).

After a gap of more than three decades, the government had imposed Capital Gains Tax (CGT) on sales of shares. However, many issues were raised by investors and market participants regarding calculation of the CGT, said Topline Securities analyst Farhan Mahmood. Imposition of gain tax and complexities in its computation was one of the reasons for record low volumes at the capital markets. The FBR considering these practical issues issued draft amendments that have partially addressed the issues being faced by the market participants, added Mahmood.

Furthermore, profit earned through sale of borrowed shares under securities lending and borrowing mechanism will be treated as capital gain. Hence, if someone made a gain of Rs100 and incurred Rs30 to finance those shares then tax will be imposed on Rs70. All Securities and Exchange Commission of Pakistan approved leverage products including Margin Trading System will be process in this manner.

This adjustment bodes positive for margin trading which has so far not lured interest of market participants, according to market experts.

The filing of quarterly CGT for non-individual investors has also been increased to 21 days from 7 days. These draft amendments will be taken into consideration after 15 days.



Published in The Express Tribune, July 23^rd, 2011.