SECP proposes FBR to align rates of capital gain tax on sale of immovable property

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has proposed Federal Board of Revenue (FBR) to align rates of capital gains tax (CGT) on disposal of securities with the rates of CGT on sale of immovable property.

The FBR has received budget proposals of the SECP for consideration in coming budget (2024-25).

The SECP has also proposed reinstatement of tax credit for five years’ investment in initial public offering, equity mutual funds and exchange trade funds.

Listed securities: PSX for bringing CGT rates in line with CGT rates on sale of immovable property

The removal of tax credits on investments in IPO, mutual funds may discourage the investors from saving in the regulated sectors specially for salaried individuals.

The proposal has no major impact on revenue but rather will promote savings and increase new corporatization in line with international practice to promote investment culture in corporate and mutual funds. The revenue impact of such withdrawal was just about Rs 2.6 billion in mutual funds, shares and insurance combined.

The FBR has also received budget proposal to reinstate tax credit for investment in Life insurance & Health Insurance.

Through a small income tax credit for taxpayers buying life and health insurance, the practice should continue to be encouraged so that this relief may be availed by a broad spectrum of our population. Total credit availed by individual tax filers were Rs280 million as per FBR. The SECP has proposed removal of anomaly by aligning rates of capital gains tax on disposal of securities with the rates of CGT on sale of immovable property.

The CGT rates on listed securities be brought in line with CGT on sale of immovable property. This is essential to eliminate the tax driven distortion between different asset classes.

It is proposed to remove the flat CGT rate of 12.5 percent, applicable on disposal of securities acquired on or after July 1, 2013 but on or before June 30, 2022; and so that gain on such securities be subject to the same rates as applicable on securities acquired after June 30, 2022. This will encourage documentation of real estate activity, and lead to an easing of speculative pressure on real estate property prices in Pakistan, where much of the undocumented wealth has been currently flowing, SECP added.

The SECP has also proposed insertion of separate clause with lower rate of tax with section 233 for brokerage and commission paid to brokers of Pakistan Stock Exchange.

In the past, Pakistan Stock Exchange collected tax at the rate of 0.02 percent on sale and purchase of securities against brokerage and commission of stock brokers.

Through Finance Act, 2021, this tax was omitted to provide relief to brokers of stock exchange registered in Pakistan. However, no separate clause was inserted at that time for brokerage and commission of brokers of Pakistan Stock Exchange.

Due to non-insertion of separate clause, brokerage and commission earned by brokers of Pakistan Stock Exchange has fallen in section 233 (rated at 12 percent) which is for all kinds of brokerage and commission resulting in higher rate of tax.

The SECP added that reducing the tax rate on brokerage and commission paid to brokers of Stock Exchanges registered in Pakistan will not only help in reducing the increasingly cost of business for stock brokers but will also help in growth of Capital Market. Back in 2019, section 233A was omitted to provide relief to broker industry but unfortunately this did not happen due to lack of proper tax planning, SECP added.

Copyright Business Recorder, 2024