CGT on stock market transactions: NCCPL collects over Rs 6 billion during 2014-15

National Clearing Company of Pakistan Limited (NCCPL) has collected over Rs 6 billion as capital gains tax (CGT) on stock market transactions during 2014-15 and generated over Rs 4 billion for the period July 1, 2015 to December 31, 2015.
In its budget proposals for 2016-17, Pakistan Stock Exchange Limited (PSX) said that the PSX continues to be a major contributor to the national exchequer through contributions by way of capital gains tax on disposal of securities (other than banks, insurance companies and mutual funds), Capital Value Tax (CVT), Advance Income Tax on sales and purchase of securities, sales tax and Federal Excise Duty on brokerage services provided by brokerage houses and advance income tax on mark-up/ interest/ premium on margin trading system and securities lending and borrowing. PSX's sister concerns, the NCCPL (National Clearing Company of Pakistan) has generated over Rs 6 billion in CGT for the federal government in FY 2014-15 and over Rs 4 billion for the period July 1, 2015 to December 31, 2015.
PSX stated that Pakistan's economy is now showing clear signs of stabilisation. The government has successfully managed to stop the stagnation of economic activity and moving the country's economy towards growth orientation. However, growth for a country such as Pakistan, needs to be investment driven growth if it is to become self-sustaining in order to achieve the objective of sustainable investment driven economic growth, it is crucial that private sector be incentivized to bring the necessary investment to the table to augment the government's laudable efforts in attracting large infrastructure and other public investment.
The role of the capital market and its attractiveness for both companies seeking long-term capital as well as savers looking for attractive investment opportunities becomes crucial. The government through policy level initiatives, especially as related to taxation can play a major role in enabling the capital market to attract long term investments into Pakistan and thus help accelerate economic growth and anti employment generation.
It said that the entire process of demutualization and integration of the three stock exchanges of Pakistan into a single stock exchange named Pakistan Stock Exchange (PSX) has been spearheaded by the Minister of Finance through the Ministry of Finance and Securities and Exchange Commission of Pakistan whilst being closely coordinated with the boards and demutualization committees of the Karachi Stock Exchange and other exchanges of the country.
In order to fully reap the benefits of the objectives of the PSX, it is imperative that further measures be taken to broad base the capital markets and lift the investors' confidence, it is envisaged that PSX will attract more listings and increase investor base which can be achieved through implementation of various measures including those directed at covering taxation issues of all stakeholders of the capital market.
In view of the above, under the guidance of the Taxation Committee and Board of Directors, PSX present PSX proposals aimed at achieving the objectives of the government and we are sure that the proposals would be given special attention of the government especially through the Ministry of Finance and the Federal Board of Revenue.
PSX said that the primary role of capital market is to mobilise long term savings and channel them into productive investment. In fact, in Pakistan, the single largest beneficiary of capital markets, specifically the stock market has been the government itself. Because of vibrant stock market activity, the government has been able to successfully generate over Rs 440 billion in the last decade through privatisation of its shareholdings in various corporations via the capital market.
Based on this, the PSX suggests that to encourage development and deepening of the capital market, the government creates an aggressive, time-bound schedule in the forthcoming budget for privatisation of major state owned entities including government to government joint ventures. Such as PARCO, PIA, various Development Finance Institutions (DFI's), Pakistan Steel, etc through initial public listings (IPO) on the stock exchanges. This would enable such enterprises to access long term capital from the private sector and at the same time, the investing public will be provided with new avenues for investment.
This would also provide an impetus to the capital markets by virtue of increased trading volumes resulting in enhanced growth and diversification of investment avenues for the investors.
In order to channelize the savings of Non Resident Pakistan's (NRPs) into productive investment inside Pakistan, it is recommended that the government make suitable adjustments in SCRA account opening and operation for NRP's who wish to invest in the stock market, so that the process is easy and transparent without needless hurdles. This would also have a positive impact on Pakistan's foreign exchange reserves.
Government would appreciate that the acceptance of proposals for promulgation of workable and implementable rules for computation of capital gains on sale of securities; not only enhanced the confidence of investors in the capital market as well as Government of Pakistan but will also generate sizeable revenue for the GOP, PSX said.
PSX strongly believes that with the smooth flow of privatisation process and increased investor base, the risk of macroeconomic stability can be minimised and further growth of the economy can be attained provided the government ensure effective law and order situation, building up of infrastructure to overcome shortage of electricity, gas and water; appropriate steps are taken to check the menace of under-invoicing and under-declaration and make every efforts to enhance tax-to-GDP ratio. PSX therefore propose that appropriate corrective measures with long term policies being introduced by the government to ensure that there is a level playing field for all and all the segments of the society are contributing their due share of tax in accordance with the ratio of their share in the GDP for the stability and development of economy, PSX added.
PSX proposals for the federal budget 2016 are therefore directed towards providing an impetus to create an investment and business friendly environment which would spur investment, enhance industrial activity and economic growth in the country.