CGT to be levied on shares purchased before July

Capital Gains Tax is to be levied on all shares from July 1, regardless of whether they were purchased before then or by foreigners, with the only exemption being holdings purchased over one year ago, said Federal Finance Minister Dr Hafeez Shaikh at the Karachi Stock Exchange on Monday.

The finance minister held talks with stock brokers in an effort to alleviate their concerns regarding the implementation of the new tax.

According to the new budget, shares held for less than six months are subject to 10 per cent CGT while shares held between six months and one year are be taxed at 7.5 per cent, while shareholdings of more than one year will be exempt from the new tax. The minister said this structure will “encourage long-term investment.”

Sources privy to the meeting between brokers and the minister told The Express Tribune that foreign investors will not be exempt from CGT despite stock brokers’ advice.

Brokers said that foreign investors should be allowed to balance out losses due to currency exchange rate fluctuations against capital gains from stock investments, before filing taxes. However, this suggestion was denied and foreigners will be subject to capital gains tax, just as local investors.

The finance minister also made assurances that stock brokers and the investors operating through them would not be harassed by Federal Board of Revenue officials regarding the source of their income.

He said that laws and regulations regarding the declaration of income and its sources already existed and no new laws had been created. While the government does have the right to be informed about an individual’s sources of income, Shaikh said FBR officials would not unduly harass anyone.

The minister also announced that a committee to address the grievances of stakeholders and provide guidance in tax-related issues was being established. The committee will include members of the local bourses and tax officials.

“The government has stepped up efforts to increase new listings on local bourses,” said Dr Shaikh. According to the minister, 2010 has shown improved performance compared to the previous year in terms of new listings at the exchange and assured that efforts from the government to further improve this will continue.

He said steps are being considered to increase free float in the market. The finance minister also said that the government is looking to the capital markets to broaden the base of public sector companies and increase investments in them.

Addressing the press, Dr Hafeez Shaikh stressed that private equity is an indispensable source of investment for the economy. He said that the government is working to improve the investment climate in the country.

He assured investors that the demutualisation draft is being considered by the Senate. Shaikh pledged that he would personally approach Chairman Senate so that the approval for the demutualisation policy may be given soon.

Similarly, he also promised that a new leverage product for investors will be made available “within the next few weeks.”

Published in The Express Tribune, June 29^th, 2010.