The Securities and Exchange Commission of Pakistan (SECP) has proposed exemption of capital gains tax on commodity futures contracts traded at the National Commodity Exchange under Income Tax Ordinance, 2001.
It was learnt on Thursday that the Capital Gains on trading of listed stocks and shares are exempted from tax under IT Ordinance, 2001 with an aim to foster the capital markets. Commodity Futures Contracts, being securities as defined under SEC Ordinance, 1969, serve the same purpose of promoting capital markets. Moreover, in order to bring trading at National Commodity Exchange at par with trading of securities at Stock Exchanges, Capital gain tax on commodity futures contracts should also be exempted under IT Ordinance, 2001.
SECP has also proposed that the application of Workers Welfare Fund as per section 2 (f) of the Workers Welfare Fund Ordinance, 1971 be removed for the service sector and in particular the Insurance industry. Provisions of Workers Welfare Fund upto last year were applicable to industrial establishment for the benefit of the workers. Inclusion of the insurance sector being a service industry within the ambit was never the intent of the original legislation. Moreover, this has also increased the cost of transacting insurance business which is already under tremendous pressure.
According to proposed amendment in Section 37 of Ordinance 2001 for Commodity Futures Contracts exemption from capital gains tax, (5) In this section, "capital asset" means property of any kind held by a person, whether or not connected with a business, but does not include;
(a) any stock-in-trade (not being commodity futures contracts, stocks and shares), consumable stores or raw materials held for the purpose of business
(b) any property with respect to which the person is entitled to a depreciation deduction under section 22 or amortisation deduction under section 24;
(c) any immovable property;
(d) any movable property excluding capital assets specified in sub-section (5) of section 38 and capital assets acquired by entering into commodity futures contracts held for personal use by the person or any member of the person's family dependent on the person. Part I of the Second Schedule of the Income Tax Ordinance, 2001 and schedule where specific businesses such as insurance and banking are covered.
Any income charged under the head 'Capital gains' being income from the purchase and sale of commodity futures contract at National Commodity Exchange Limited that are settled in cash, delivery or offset trade, it added. The SECP has also proposed comprehensive changes in the Income Tax Ordinance 2001 to facilitate speedy demutualization of the stock exchanges.
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