The government and the three stock exchanges have, in principle, agreed to reduce the rate of capital value tax (CVT) to 0.01 percent from the proposed 0.1 percent.
To meet the shortfall three other taxation measures would be taken by the bourses, Islamabad Stock Exchange Chairman Omer Iqbal Pasha told Business Recorder here on Thursday.
The stock exchanges would contribute over Rs 1.6 billion through enforcement of these levies from July 1, 2004. However, the amount would go up to Rs 5 billion in next four-five years due to expected growth in the collection.
Under the new arrangement, the government has agreed that the rate of CVT would be reduced to 0.01 percent from the proposed 0.1 percent. The collection would be made by the respective stock exchange from their member brokers on behalf of purchasers of shares in ready, future and provisional markets. The CBR Member Direct Taxes would devise the modalities for payment and collection of CVT.
Secondly, there would be a presumptive withholding tax equivalent to 0.005 percent of the purchase value of shares to be collected by the respective stock exchanges from their member brokers in place of the commission earned by them, Pasha said.
Thirdly, there would be a withholding tax on sale value of shares to the extent of 0.005 percent to be collected by respective stock exchanges from brokers on behalf of their clients in respect of trading of shares.
Moreover, there would be a withholding tax at the rate of 10 percent on carryover charge (COC) - badla to be collected by respective stock exchanges from the members of stock exchanges on behalf of their clients, pertaining to financing of carryover transactions.
The five-member committee on CVT issue comprising M.S. Lal, Member Tax Policy and Reforms; Shahid Ghaffar, Commissioner, Securities and Exchange Commission of Pakistan (SECP); Arif Habib, Chairman, Karachi Stock Exchange (KSE); Syed Asim Zafar, Chairman, Lahore Stock Exchange and Omer Iqbal Pasha, Chairman, Islamabad Stock Exchange (ISE) met here on Thursday to resolve the issue of 0.1 percent capital value tax (CVT) levy on purchase of shares.
The committee also met CBR Chairman Abdullah Yusuf to finalise the proposals. The committee convened a daylong meeting at the CBR for developing consensus on alternative taxation proposals.
It also discussed in detail the revenue impact of each proposal. The aggregated amount would cross Rs 1.6 billion from these tax measures.
Later, the committee went to the Finance Ministry for submission of recommendations signed by the KSE, LSE and ISE chairmen to Finance Minister Shaukat Aziz.
The finance minister has, in principle, agreed with the proposals and 0.1 percent CVT would not be enforced from July 1, 2004.
Pasha said that Shaukat has assured the heads of stock exchanges that the government would get approval from the National Assembly regarding these taxation measures floated by the stock exchanges.
On behalf of all the three stock exchanges, he said that the finance minister''s personal efforts have resulted in the early resolution of the issue.
The timely measures of the finance minister has encouraged millions of investors to continue investing in the stock market, he added.