ISLAMABAD: Pakistan Stockbrokers Association (PSBA) has proposed massive changes in the Capital Gains Tax (CGT) regime on disposal of securities in the coming budget (2022-23).
In this connection, the revised slabs of the CGT have been proposed on disposal of securities for 2022-23.
The Securities and Exchange Commission of Pakistan (SECP) and the Federal Board of Revenue (FBR) has received budget proposals of the stock market brokers.
The government should incentivise the investors by spreading the CGT on other markets, stock brokers proposed.
Under the revised CGT regime, where holding period is less than a year, the CGT has been proposed to be 10 percent on disposal of securities; where holding period is less than two years but more than or equal to one year, the rate of the CGT has been proposed to be 7.5 percent; where holding period is less than three years but more than or equal to two years, the CGT rate has been proposed to be five percent and where holding period is equal to or more than three years, the rate of the CGT has been proposed at zero percent.
Disposal of securities: Stock brokers seek cut in CGT
According to the budget proposals of the PSBA, the present rate of capital gains tax at 12.5 percent is exorbitant and amounts to discouraging investment in the capital market.
To encourage investment in the stock market for a longer period, there should be no tax where the holding period is equal to or exceeds three years.
The capital gains tax under section 37A applicable to filers may be made applicable to non-resident Pakistanis through amendments in the Income Tax Ordinance 2001 to encourage foreign remittances, proposal added.
The PSBA requested for providing tax incentives on capital gain and investment in stock exchange.
According to the budget proposals for the next fiscal year, the document contains tax recommendations as well as sector-wise proposals for consideration of the government and to help them prepare a capital market, business, and investor-friendly budget.
The intention is to request to provide incentives for capital formation and to remove disincentives.
The capital market plays a vital role in an economy.
There can be no economically successful Pakistan without a vibrant capital market.
These proposals are also focused on some impediments in the growth of the market, and anomalies hurting the depth of the stock market.
The core principles of the proposals are to promote the investment culture, to encourage the investors, and to incentivize the direct investors in the capital market.
The association proposed that the dividend is paid out of the tax-paid income of the company, tax on dividend amounts to triple taxation of the same income.
The present tax rate on the dividend is confiscatory in nature and has discouraged investment in stocks which in turn has slowed down the process of industrialisation.
Reduction in the tax rate would generate more investment in stocks and thus, more revenue for the federal government.
Government should introduce a mechanism to remove triple taxation of company’s profits; (a) Once in the hands of the company; (b) Once in the hands of the sponsors; and (c) Once in the hands of shareholders as dividends.
The association proposed that the tax rate is 25 percent in case of a person receiving a dividend from a company where no tax payable by such company due to exemption of income or carry forward of business losses or claim of the tax credit, thus, 50 percent for non-filers, which is more than normal tax regime of 29 percent. It is therefore proposed that the tax rate is exorbitant for such a category may be reduced.
Copyright Business Recorder, 2022