Increasing securities' holding period: CGT scope on stock exchanges expanded: FBR

A Senior Federal Board of Revenue (FBR) Member Inland Revenue Policy has said that the government has expanded the scope of capital gains tax (CGT) on stock exchanges in budget (2014-15) by increasing the holding period of securities.
Speaking at "Paisa Bolta Hai", of Aaj News, Shahid Hussain Asad, the official spokesperson for FBR, said the rate of capital gains tax on stock exchanges has not been increased from 10 to 17.5 per cent as earlier agreed in 2010. The CGT rates are proposed to be 12.5 per cent for securities held up to 12 months and 10 per cent for securities held for a period between 12 to 24 months. The rates have been brought down from 17.5 to 12.5 per cent, but holding period has been increased. "The spectrum of the CGT has been broadened and we are not losers but gainers," he added.
At present, National Clearing Company of Pakistan Limited (NCCPL) is maintaining data of individual investors. The companies, which are engaged in buying and selling actively are separately paying tax at full rates and filing their income tax returns. Through an amendment to the Income Tax Ordinance 2001, the NCCPL would also collect tax from foreign institutional investors in stock exchanges.
Shahid Hussain Asad said that the FBR would communicate names, computerised national identity cards (CNICs) numbers and National Tax Numbers (NTNs) to banks, excise and taxation departments, airlines and property registrars to impose double rates of withholding taxes on non-compliant taxpayers.
Official Spokesperson for the FBR said that the government has tried to hit high end consumers in the budget (2014-15) like foreign travellers in business/first class, domestic electricity consumers having monthly bill above Rs 100,000 and the buyers of properties with value above Rs 3 million.
The FBR has published the Tax Directory for Tax year 2013 which would be communicated to banks and other withholding agents for deduction of the higher rates of withholding taxes from un-registered persons. The names of persons not mentioned in the Tax Directory are non-filers. The FBR will not share the information about the tax paid to the withholding agents, but only CNICs/NTNs would be conveyed to them.
To impose higher rates of withholding tax on purchase of property, the FBR will issue Taxpayer Cards to the taxpayers for distinguishing between the compliant and non-compliant persons. The FBR will not interfere into the DC rates on property but the purchasers would have to explain the value to the extent of property registered. As far as privacy is concerned, Shahid Hussain Asad said that the income tax law has barred the tax department from disclosing the amount declared in the returns. The FBR will not share bank account numbers of taxpayers, but only CNICs/NTNs. Thus, the privacy laws would not be breached for documentation of economy.
About the revenue collection position, the FBR has provisionally collected Rs 1,955 billion in July-May (2014-15) against the target of Rs 2,275 billion. An amount of Rs 320 billion is required to meet the target. The FBR has collected Rs 320 billion in June 2014 against Rs 262 billion in June 2013. At present, the FBR is witnessing 17-18 per cent increase in revenue collection during 2014-15. We are confidant to meet the assigned target subject to economic situation in Karachi. The FBR's revenue collection is directly linked with the Karachi's economy. Any incident in Karachi has adverse effect on the revenue collection. However, the FBR has intensified its efforts for achieving target by the end of current fiscal year.
He said that all exemptions worth Rs 480 billion cannot be withdrawn due to international obligations, promotion of exports, sovereign guarantees to the IPPs and Free Trade Agreements/Preferential Trade Agreements. The government cannot withdraw sales tax exemption on the import of crude oil having revenue impact of Rs 90-95 billion. If the government withdrew exemption on crude oil, it would directly hit the poor class. The government has withdrawn exemptions of Rs 103 billion through SROs which is a substantial amount. It is an overall policy of the government not to withdraw exemptions having direct affect on the masses.
He said that over 50 per cent of the economy is informal where withholding taxes are effective source of collection. Such measures are required to collect withholding taxes from the un-registered persons till 100 per cent economy is fully documented. Most of the people are investing in real estate business from income earned through legal or black money. Some of the buyers/sellers of property are in the tax net whereas others are operating out of the tax regime. The filers are massively under-declaring value of immovable properties in their returns. Keeping all this in view, adjustable withholding tax has been proposed to be imposed on purchase of properties ie one per cent for compliant and 2 per cent for non-compliant taxpayers.