The Karachi Stock Exchange (Guarantee) Limited’s Budget proposal for FY 2011-2012
Karachi: Your Excellency, subsequent to our meeting with FBR, we are honoured to submit specific proposals regarding taxation on individuals related to investment in shares of listed companies, as under:
37A. Capital gain on disposal of securities (1).The capital gain arising on or after the first day of July 2010, from disposal of securities held for a period of less than a year, shall be chargeable to tax at the rates specified in Division VII of Part I of the Pint Schedule:
Provided that this section shall not apply if the securities are held for a period of more than a year:
Provided further that this suction shall not apply to an individual Investor, a banking company and an insurance company:
(2) The holding poised of a security, for the purposes of this section, shall be reckoned (from the date of acquisition (whether before, on or after the thirtieth day of June, 2010 (1) to the date of disposal of such security falling after the thirtieth day of June. 2010.
(3) For the purposes of this section – security mean share of a public company, voucher of Pakistan Telecommunication Corporation. Modaraba Certificate, an instrument of redeemable capital and derivative products.
(4) Gain under this section shall be treated as a separate black of income.
(5) Notwithstanding anything contained in this Ordinance, whore a person sustains a loss on disposal of securities in a tax year the loss shall be set off only against the gain of the person from any other securities chargeable to tax under this section and no loss shall be carried forward to the subsequent tax year.
233B. Collection of tax by a stock exchange registered in Pakistan in lieu of Capital Gains.-
(1) A stock exchange registered in Pakistan shall collect tax at the rates specified in Division 11B of Part IV of First Schedules in respect of sale of shares by the individual investors.
(2) The tax collected under sub-section (1) from individual investors shall be final tax arising from the transaction in this section in lieu of capital gain earned by the Individual Investors.
Rates for Collection of Tax by a Stock Exchange Registered in Pakistan in lieu of Capital Gain
In case of trading of shares as mentioned in clause (c) of 0.02% of sale value Sub-section (1) of section 2334 A-169. Tax collected or deducted as a final tax,- (1). This section shall apply where.
(a) The collection of advance tax is final tax under sub-section (7) of section 148 or sub-section (2) of section 233B ir sub-section (5) of section 234 or section 234A on the income to which it relates: or
(b) The deduction of tax is final tax under clauses (a), (b) and (d) of sub-section (1) of section 151. Sub-section (1B) or sub-sub-section (1BB)] of section 152, sub-section (6) of section 153, section 153A, sub-section (4) of section 154, sub-section (3) of section 156, sub-section (2) of section 156A or sub-section 8 [(1) and (3) of section 233 on income from which has been deducted.
(2) Where this section applies-
(a) The income shall not be chargeable to tax under any head of income in computing the taxable income of the person:
(b) No deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income:
(c) The amount of the income shall not be reduced by –
(1) Any deductible allowance under Part IX of Chapter III; or
(2) The set off of any loss;
(d) The tax deducted shall not be reduced by any tax credit allowed under this Ordinance; and
(e) There shall be no refund of the tax collected or deducted unless the tax so collected or deducted is in excess of the amount for which the taxpayer is chargeable under this Ordinance.
Compulsory Distribution of Dividend by Listed Companies:
Finance Act, 199-2000 made it compulsory for listed companies with free reserve of more than 50% of its paid-up capital to distribution at least 40% of its taxed profit as cash dividend, failing which 10% tax was to be paid on such excess reserves. This measure had proved to be very effective resulting in payment of Additional cash dividend not only to the investors but also generated extra revenue for the Government by way of 10% tax on such cash dividend- This compulsory distribution was necessary to notify the oppressive practice of the controlling shareholders, who more often choose to ignore the expectation of minority shareholders and the balance 60% retention out of profits is generally sufficient to meet the requirements of the company for expansion and growth.
In view of its healthy effect on investors’ confidence and the capital market as a whole, we urge for its reintroduction in the Finance Bill for 2011-2012 by also including stock dividend in addition to cash dividend and also enhancing the compulsory distribution of 40% to 50%.
For more information, contact:
Karachi Stock Exchange
Tel: +9221 111-001122
Fax: +9221 3241 0825, +9221 3241 5136