‘CGT ordinance not an amnesty scheme,’ say tax experts

Claim ordinance has clauses to counter possible exploitation.

ISLAMABAD: Market analysts and taxation experts said on Monday that the presidential ordinance which came into effect on April 24 – which allows stock market investors to conceal the sources of their investment for the next two years – could not be termed an ‘amnesty scheme’ for money launderers who wish to whiten their ill-gotten money.

According to the ordinance, investors who hold shares for at least 120 days will not be required to reveal their source of investment.

Talking to The Express Tribune, AF Ferguson and Company Senior Tax Partner SM Shabbar Zaidi said it is unfair to call the ordinance an amnesty scheme, as investors would still be required to submit wealth statements under the new regulations.

“The new system has three added benefits: one, it outsources tax collection to the National Clearing Company of Pakistan (NCCPL), which is conceptually a good idea; two, it’ll result in taxation on net income, as opposed to presumptive taxation, which is a regressive regime; and three, it requires investors to submit wealth statements, which makes it anything but a scheme to launder black money,” Zaidi said.

“If it doesn’t work out the way the government expects, it can always withdraw these provisions.”

In contrast, the system that was in place prior to the promulgation of this ordinance was “totally ineffective,” he said.

Earlier, the Pakistan Business Council (PBC) – an advocacy platform for some of the largest private-sector businesses operating in Pakistan – issued a strong statement against some provisions that are part of the ordinance.

It stated that granting amnesty with regard to the source of all funds invested from April 1, 2012, to June 30, 2014 in the stock market was objectionable. “This could potentially become a major route for laundering of funds generated from illegal sources,” it added.

In an email to The Express Tribune received on Monday, the official spokesperson of the Securities and Exchange Commission of Pakistan (SECP) – which is the regulator of Pakistan’s stock markets – said stringent know-your-customer and customer-due-diligence policies were being implemented at the broker level; requiring a detailed disclosure of sources of funds at the time of opening of an account with a brokerage firm.

He added that the NCCPL will provide investor-wise information and data to the Federal Board of Revenue on a monthly basis. “Therefore, assuming that the SECP proposal (in favour of the provisions) does not take into account concerns vis-à-vis the existing anti-money laundering regime is totally baseless.”

However, the PBC supported the provision in the ordinance that makes computation of capital gains tax (CGT) transparent by the NCCPL, as well as freezing present rates of CGT until 2014.

Speaking to The Express Tribune, Khurram Schehzad, head of research at Invest Capital Investment Bank, noted the assumption that the stock market was the only – or the easiest – way to whiten black money was wrong.

He opined that foreign portfolio investment was likely to increase after promulgation of the ordinance. “The long-term situation, however, will depend a lot on the upcoming budget and the kind of incentives it offers to potential investors,” he noted.

Published in The Express Tribune, May 2^nd, 2012.