Download Regime of Capital Gain Tax

Regime of Capital Gain TaxCGT
NCCPL
Presentation
1
Back Ground of CGT
Regime
2
Back Ground of CGT Regime

The SECP, in order to strengthen the Capital Market in
Pakistan, forwarded a proposal to the Federal Board of
Revenue (“FBR”) for Revamping of CGT Regime.

This was Intended to Provide Ease of Calculation and
Documentation to Investors.

Accordingly, NCCPL shall be Responsible to Compute,
Determine, Collect and Deposit CGT to FBR.
3
Back Ground of CGT Regime

CGT Rules have been revised though the promulgation of Finance
(Amendment) Ordinance, 2012 effective from April 24, 2012.

Section 100(B) has been inserted in the Income Tax Ordinance, 2001.

For detailed treatment of CGT, Rules and Procedures have been
mentioned as follows:

Rules for the Computation of CGT on Listed Securities have been
devised in Eight Schedule under section 100(B) of the Income
Tax Ordinance, 2001.

Special Procedures for Computation of Capital Gains and
Collection of Tax under the Eighth Schedule and Other Related
Matters described in rules 13N to 13P of the Income Tax Rules,
2002.
4
Overview and
Procedures of CGT
Regime
5
Overview and Procedures of CGT Regime

Following are the Persons/Investors to which new CGT Regime will be
applicable:




Individual Investors (local and foreigners);
Brokers; and
Corporate Entities (local and foreigners).
However, following Persons/Investors will NOT be covered under new
CGT Regime:
 Mutual fund;
 Banking Company;
 Non-Banking Finance Company;
 Insurance Company;
 Modaraba;
 ‘Foreign Institutional Investor’ (this exclusion have been lifted
through Finance Act, 2014); and
 any person or class of persons as notified by the FBR.
6
Overview and Procedures of CGT Regime

Any Person/Investor may Opt-Out from the new CGT Regime.

For Opting-Out, Person/Investor shall be required to file an
Irrevocable Option to NCCPL after obtaining prior approval of the
Income Tax Commissioner in the Prescribed Manner.

CGT Regime will NOT be applied on such Person/Investor who OptedOut.
 CGT Rates:
Tax Year
2015

Holding period less Holding period greater than
than 1 year
1 year but less than 2 years
12.5%
10%
For holding period more than 24 - months no CGT will be
computed.
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Overview and Procedures of CGT Regime
Principles of Holding Period of Inventory Before the
Promulgation of CGT Regime
S.NO. Holding Period
Inventory
Age
Price
1.
Securities
Balance More
than Closing Price of 23rd April 2011
As-of 23rd April 2011
One Year
2.
Securities have been
Acquired or Disposed
off Between 24th April
2011 to 23rd April
2012.
Determined
as per the
Actual
Acquisition
and Disposal
 Market-Based
Transaction Price
Transactions-
 Non-Market-Based
Transactions - Deal Price or
Closing Price, as the case may
be.
 Same principles of holding period of inventory has been applied on
Foreign Institutional Investors with necessary modifications.
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Overview and Procedures of CGT Regime
Principles for Physical Securities Deposited into CDS
S.NO. Deposit of Physical
Securities
Inventory Age
Price
1.
Physical Securities have
been deposited in CDS
Between 24th April 2011
to 23rd April 2012
The
Date
of Closing Price of
Acquisition shall be 23rd April 2011
Deemed as 23rd
April 2011
2.
Physical Securities have Actual
Date
of
been deposited in CDS Acquisition
as
on or after 24th April Communicated by
2012
CDS. But it should
not be Earlier than
23rd April 2011.
Prevailing
Closing Price of
the
Deposited
Date.
 Same principles for Physical Securities Deposited into CDS has been
applied on Foreign Institutional Investors with necessary modifications.
9
Overview and Procedures of CGT Regime
General Principles for the Determination and
Computation of CGT

Types of Transactions Covered under New CGT Regime:


Market Based Transactions
Non-Market Transactions (CDS security movements)

CGT will be computed based on the transactions and their values taken
from the Systems of Stock Exchanges, Central Depository Company of
Pakistan Limited and clearing members in case of Foreign Institutional
Investors only.

First In First Out (FIFO) Inventory Accounting Method will be used.

Capital Loss in a Financial Year shall be Set Off against Capital Gain of
that Financial Year.
10
Overview and Procedures of CGT Regime
General Principles for the Determination and
Computation of CGT

Capital Loss in a Financial Year Shall NOT be Carried to a Subsequent
Financial Year.

Fixed Cost of 0.50% on non-proprietary trades and 0.25% on proprietary
trades on Disposal or Acquisition of Securities, in lieu of all Expenses
will be Deducted or Added while Computation of CGT.

Financing Cost Incurred through NCCPL’s Leveraged Market Products
shall be Taken into Account while Computation of CGT.

CGT shall be Collected on Monthly Basis for Transactions Settled in a
Month, after Adjustment of Losses of the Previous Month or Months of the
Same Financial Year.
11
Overview and Procedures of CGT Regime
General Principles for the Determination and
Computation of CGT

CGT shall be Collected From or Through the Respective Clearing
Members on Net Capital Gains of Persons/Investors.

Any Person/Investor, if Not Satisfied with the Computation of Capital Gain
or Tax thereon, such Person/Investor may Re-Compute the Capital Gain
and Lodge Claim of Refund, if any, with the Commissioner of FBR.

The Amount Collected by NCCPL, Shall be Deposited in a Separate Bank
Account with National Bank of Pakistan and such amount shall be paid to
the FBR alongwith interest accrued thereon on yearly basis by July 31.

In Case of Non-Recovery of CGT, for any reason whatsoever, NCCPL Shall
refer a the Case for recovery of CGT to the FBR.
12
Overview and Procedures of CGT Regime
General Principles for the Determination and
Computation of CGT

Brokerage Account of the Persons/Investors shall NOT be Closed Until
and Unless such Persons/Investors Obtains a Clearance Certificate from
NCCPL.

Following Certificate / Statement Shall be Provided by NCCPL:

Annual Certificate to each Investor within Thirty Days from the End of
a Financial Year.

Quarterly Statement shall be Furnished to FBR within Thirty Days
from the End of Each Quarter.
13
Explanation and
Treatment of Market
and Non-Market Based
Transactions
14
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Transactions
Impact on
Inventory
Pricing
Sale &
Purchase of
Securities
Through
Trading
Systems
Inventory
Taken
Out/In on
FIFO
Basis on
Settlement
Date
Average Purchase/ Average Sale
Acquisition Price
Price of the
Security Sold
Squaring up
Transactions
in Ready,
Futures and
Derivatives
(Day(Trading)
No Impact
on
Inventory
Average Purchase
Price
Purchase/Acquisition
Tax Treatment
Sale/Disposal
Average Sale
Price of the
Security Sold
CGT Shall be
Computed as
per Rates in
accordance
with the
Holding Period
15
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Tax Treatment
Purchase/Acquisition
Sale/Disposal
Deal Price or
Closing Price at
Ready Market
whichever is
Higher
Deal Price or
Closing Price
at Ready
Market
whichever is
Higher
CGT Shall be
Computed as
per Rates in
accordance
with the
Holding Period
Not
Recorded for
PC.
No CGT for
Federal or
Provincial
Government
on Transfers.
Sale &
Purchase
through
Negotiated
Deal Market
(NDM)
Inventory
Taken Out/In
on FIFO
Basis on
Settlement
Date
Transfer of
Securities
Owing to
Privatization
Inventory
Acquisition Price
Move-in the
Buyers’
Account and
Move-out
from
Privatization
Commission’s
(PC)Account.
16
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Tax Treatment
Purchase/Acquisition
Sale/Disposal
Actual Selling
or Negotiated
or Quoted
Price as the
CGT Shall be
case may
Computed as
per Rates in
accordance
Price Paid by with the
the Company Holding Period
to Acquire
the Shares .
Transfer
Owing to
Acquisition
Inventory
Taken
In/Out on
FIFO Basis.
Purchase /
Acquisition Price
Buy-back of
Shares
Inventory
Taken
In/Out on
FIFO Basis
Purchase/Acquisitio
n Price
17
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Transactions
Impact on
Inventory
Portfolio
Transfer –
where all
UINs are
Matching
Transfer /
Transmission
upon Death
Pricing
Tax
Treatment
Purchase/Acquisition
Sale/Disposal
No Impact on the
Age of Inventory
Age
Original Purchase
/ Acquisition Price
N/A
N/A
Shares are
Transferred to
the Beneficiary
with the same
Date of
Acquisition as
was in the hands
of Deceased
Person
Original Purchase
/ Acquisition Price
as was in the
hands of
Deceased Person
N/A
N/A
18
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Purchase/Acquisition
Sale/Disposal
Tax Treatment
Transfer for /
against
GDRs GDRs are
Converted
into Shares
Acquisition
of Inventory
Closing Price of the
Date of Deposit
N/A
N/A
Transfer for /
against
GDRs Deposits into
Depository
and Get
GDRs
Inventory
Taken Out
on FIFO
Basis
Purchase /
Acquisition Price
Closing Price
of the Date of
Transfer
CGT Shall be
Computed as
per Rates in
accordance
with the
Holding Period
19
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Reversal of
Erroneous
Transfers
Inventory
Taken In / Out
on FIFO Basis
Gift
Shares are
Transactions Transferred to
the Beneficiary
with the same
Date of
Acquisition as
was in the
hands of
Transferee
Pricing
Tax Treatment
Purchase/Acquisition
Sale /
Disposal
Closing Price of the
Transaction Date
N/A
No CGT
Cost as was in the
hands of
Transferee
N/A
No CGT
20
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pledge call
Default in
Delivery by
Seller and
Subsequent
Squaring-up
by NCCPL
Pricing
Purchase/Acquisition
Sale/Disposal
Inventory
shall be
Taken out
from the
Defaulter’s
Account
Average Purchase/
Acquisition Price
Closing Price
of the Date of
the Pledge
Call
• No Impact
on Delivery
Defaulter.
Average Purchase / Square-up
Acquisition Price
Price
Tax
Treatment
CGT will be
Computed as
per the
Holding
Period.
• Inventory
Taken Out
on FIFO
Basis From
the Squareup Seller
21
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Purchase/Acquisition
Tax Treatment
Sale/Disposal
Right Issue
Upon Exercise
of Right or
Purchase,
Inventory
Recorded at
the Credit Date
Subscription Cost
N/A
of the Right Shares
N/A (However,
LoR trading
shall be subject
to CGT @
10%)
Bonus
Shares
Inventory
Recorded at
the Bonus
Credit Date
Ex-Price
N/A
NA.
Offer for
Sale
Securities are
Credited on
Acquisition
Date
Cost of Acquisition
N/A
N/A
22
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
De-Merger
Existing Company’s
Shareholding is
Reduced with the
Revised
Shareholding.
Pricing
Purchase/Acquisition
Sale/Disposal
Tax
Treatment
Same Cost of
Acquisition of the
Existing Company
N/A
N/A
Price Adjusted in
Accordance with
the Merger Ratio
N/A
N/A
New Shareholding in
the New Company
With the Same Date
of Acquisition of
Existing Company
Merger
No change
In Ownership
Extinguished
Security
Replaced with
New Security
with Merger
Ratio
23
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Purchase/Acquisitio
n
Sale/Disposal
Tax Treatment
Specie
Dividend
Shares will be
Added in the
Share Holders’
Account at the
Date on which
Shares are
Credited.
Zero Price
Deal Price on
Issuing
Company
CGT Shall be
Computed for
Issuing
Company as
per Rates in
accordance
with the Holding
Period .
Capital
Reduction /
Splitting of
Shares /
Conversion
Inventory
Replaced and
Adjusted as per
Ratio or
Division.
Cost of
Acquisition of
New Shares will
Remain Same, as
it was for Existing
Shares
N/A
N/A
24
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Tax Treatment
Purchase/Acquisition
Sale/Disposal
Transfer
under TaxNeutral
Court
Orders
Shares are
Transferred to
the Beneficiary
with the same
Date of
Acquisition as
was in the
hands of
Transferee
Cost as was in
the Hands of
Transferee
Transfer
under
Taxable
Court
Orders
Shares are
Closing Price of
Transferred to
the Date of
the Beneficiary Transfer
with the Date of
Transfer
N/A
N/A
Closing
Price of the
Date of
Transfer
CGT will be
Computed as
per the
Holding
Period.
25
Explanation and Treatment of Market and Non-Market Based Transactions
Securities Lending and Borrowing (SLB)
Tax treatment

The Net Difference in the Hands of the Borrower resulting in completing
the whole transaction. (Difference of the Price of the Sale and RePurchase).

Financial Charges incurred on Borrowing the Securities Shall be Taken
into Account while Computing CGT.

Tax to be collected at applicable rates on Net Gain

CGT will Not be Applied on the Income of the Lender.
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Thank you !
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