Market players expressed satisfaction over the deal whereby equity holdings beyond the 12-month period would be exempt from the CGT which means that the CGT was in fact levied on “trading and not investment”.

KARACHI: The capital gains tax on stock trading would be levied from July 1 at 10 per cent for holding of less than six months and at 7.5 per cent where an investor retains securities beyond six months and up to a year.

The tax is to be applicable on the purchase of shares after the end of the current fiscal year. 

A consensus was reached on Monday on the introduction of a tax regime on stock trading at a meeting of a delegation of the Karachi Stock Exchange with Finance Minister Shaukat Tarin. The Federal Board of Revenue chairman and Member Tax Policy (direct taxes) also attended the meeting. 

A participant of the meeting told ‘The Statesmen’ that the decision entailed charge of CGT on purchase of shares, under two separate brackets. 

For holdings of less than six months, the initial rate for first two years would be 10 per cent, to be progressively increased by 2.5 per cent for next three years, which would carry it to 17.5 per cent at the end of a five-year period. In case of holdings for a period of 6 to 12 months, the initial rate of 7.5 per cent would be edged up by 0.5 per cent a year, to cap it at 10 per cent at the end of five years. Equity holdings beyond the 12-month period would be exempt from the CGT. 

A statement released by the KSE claimed: “All uncertainty about CGT, its rates and from when it will be applicable has been resolved.” 

Market players expressed mixed views on the proposals finalised at the meeting. A broker lamented that the rate of tax was substantially higher than the 5 per cent proposed by the KSE. But, some prominent members argued that the bourse could not have wriggled out of its two-year-old commitment of accepting a tax on stocks from fiscal 2010-11. 

Arif Habib, a senior member who attended the Monday’s meeting, expressed satisfaction over the deal. He said that by exempting securities retained for over a year, the CGT was in fact levied on “trading and not investment”. 

He said the Monday’s meeting was a follow-up of the one held on Saturday when it was agreed in principle that the country had to explore new resources to bolster the economy. He said the consensus emerged on Monday would be included in the next budget. 

Among other proposals, it was decided that the withholding tax would be made adjustable and federal excise duty would be converted into value-added tax. 

A fund manager said that it was encouraging to note that the issue was resolved in such a way as to enable investors draw up a five-year investment strategy. 

The meeting also discussed tax rebate to new companies in order to encourage capital formation through initial public offerings. The proposal of introduction of a ‘leverage product’ was also given due consideration.