"The imposition of 0.1 percent Capital Value Tax (CVT) on purchase of shares will drastically impact the trading volume on the bourses and the government's estimate to net Rs 7 billion will not materialise. And in case it is not withdrawn or reduced, the government can kiss goodbye to the privatisation of its business holdings through sale of shares on the stock market," said Chairman, AKD Securities, Aqeel Karim Dhedhi.
Regarded by many as the king of the Karachi Stock Exchange and fondly known as Aqeel Bhai, Dhedhi told Business Recorder, on Sunday, that he has asked the Federal Finance Minister to sit with bourses leadership and resolve the issue, otherwise there shall be no trading on the Exchange even if it open up on Monday.
"We are not closing down our shutters in protest but it is not possible for the rank and file in the brokerage community to pay or accept responsibility for depositing the CVT. Let it be imposed on 10 large brokerage houses. Or instead the government can impose a holding period for exemption of capital gain on shares. Had it been 0.01 percent instead of 0.1 percent one could live with it," he emphasised.
He said, "I told the Finance Minister that you have been misled. The net income from Badla transaction (@ average of 8 percent) is Rs 2 to Rs 2.5 billion in a year and not Rs 22 or 25 billion estimated by the CBR."
"Just as you cannot ask oil marketing companies working on a margin of 2 to 2.5 or 4 percent to pay on the turnover which is in billions; similarly, you cannot ask brokerage firms working on similar margins to absorb this levy," Dhedhi fumed.
It is the increase in volume to present levels, which provides the attraction to investors and the government has benefited in offloading its shares, he said. "If this levy is not reduced or withdrawn there shall be still no trading for the next 15 days," challenged Aqeel Bhai.
According to Dawood Jan Mohammad, Director on the Board of KSE, 80 percent of the trading volume is on account of day trading under the 'Badla' umbrella and no settlements are concluded in such deals.
Further, he said, the real beneficiaries of capital gain exemption on shares are banks, Modarabas and mutual funds, which hold 92 percent of the scrips. Capital gain exemption cannot be claimed unless there is a buy and sell payment by check and transfer in ownership, he explained.
It was alleged that banks at present claim exemption on the carryover transaction (COT) deals which is basically normal financing and should be subject to tax as part of income. "This is highly unfair. Why does the government not check this practice," he added.
Pressed on the need to bring more people into the tax net in order to increase the collection base, he proposed that government should make it mandatory for investors to provide NTN number or the last assessment order for opening an account with the CDC.
For the first time the Jamali government is faced with a rebellion on a tax proposal. Musharraf government had to withdraw the 'shutter-tax' proposal when the Bara market shopkeepers went on strike in the year 2000. The challenge is for Finance Minister Shaukat Aziz to amicably resolve the issue, said a market player.
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