Govt to withdraw amnesty for stock market

FBR says exemption from disclosing source of income violates laws.

ISLAMABAD:

The government has decided to withdraw the exemption granted to stock investors from disclosing the source of income as well as remove the freeze on rates of capital gains tax, sources say.

Both the decisions were taken here on Friday in a meeting of the Tax Reforms Coordination Group (TRCG), headed by Adviser to Prime Minister on Finance, Dr Abdul Hafeez Shaikh.

Officials of the Federal Board of Revenue (FBR), Securities and Exchange Commission of Pakistan (SECP) and members of TRCG attended the meeting.

Sources told The Express Tribune that the government decided that no amnesty would be granted in violation of rules. According to the FBR, the proposed amnesty scheme for stock investors violated existing income tax laws. Either the laws would have to be amended or the announcement would have to be taken back, was the suggestion given to Shaikh by FBR officials, sources said.

On a visit to the Karachi stock market about a month ago, Shaikh announced the amnesty scheme and also froze CGT rates at existing 7.5 per cent and 10 per cent for next two years. The SECP had floated these proposals in an effort to revive the stock market.

According to the announcement made on January 21, the government would not ask for the source of income from capital market investors by the end of 2014, thereafter that wealth would be treated as ‘white’. The government also abolished withholding tax on sale of shares and kept CGT rate at 7.5 per cent on sale of shares after six months, but before one year of purchase and 10 per cent on sale before six months of purchase. The decisions had to take effect from April 1.

According to the Money Bill 2010, from July 2012 the CGT on sale of shares before six months will be 12.5 per cent, and after six months it will be 10 per cent.

Proponents of the amnesty scheme, led by the SECP, argue that since the imposition of CGT on stock investments, the collection of taxes has come down to a mere Rs400 million from Rs5 billion annually, while daily trading volume has dipped to 150 million shares from 450 million shares.

However, the amnesty sparked concerns that it may violate the Anti-Money Laundering Act and people could walk away by legalising ill-gotten money.

FBR spokesperson neither confirmed nor denied the development in Friday’s meeting.

“SECP has no comments on whether the decision has been reversed,” said Ahmer Shamsi, an official of SECP’s media wing.

However, according to a handout of the FBR, the TRCG discussed proposed changes in implementation of CGT aimed at simplifying the mechanism, improving enforcement and broadening the tax base. The committee formed an implementation group consisting of TRCG members, FBR officials and SECP representatives to ensure implementation in line with the law, it added.

Tax performance reviewed

According to the handout, FBR performance was reviewed and budget proposals were discussed during the meeting. The TRCG recommended to the government to gradually increase the presumptive tax rates and reduce income tax rates to promote tax culture in the country.

FBR Chairman Mumtaz Haider Rizvi apprised the group of taxes collected under various heads and administrative measures taken. Up to February 22, the collection stood at Rs1,068 billion, 26 per cent higher than Rs847 billion collected in the corresponding period of previous year.

In February, the FBR has so far collected Rs93 billion and needs another Rs43 billion in the remaining period to achieve the monthly tax target.

Published in The Express Tribune, February 25^th, 2012.