New Regime of Capital Gain Tax (CGT)

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New Regime of Capital Gain
Tax-CGT
NCCPL
Presentation
1
Back Ground of New
CGT Regime
2
Back Ground of the New CGT Regime

The SECP as a part of its mandate to develop 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 the New CGT Regime

CGT Rules have been revised though the promulgation of
Finance (Amendment) Ordinance, 2012 effective from April 24,
2012.

New section 100(B) has been inserted in the Income Tax
Ordinance, 2001.

For detailed treatment of CGT, following new Rules and
Procedures have been introduced in the Income Tax Ordinance,
2001:

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 Section 13N of the Part III of the Chapter II of
the Income Tax Rules, 2002.
4
Overview and
Procedures of the New
CGT Regime
5
Overview and Procedures of the New CGT Regime

Following are the Persons/Investors to which new CGT Regime will
be applicable:




•
•
•
•
•
•
Individual Investors;
Brokers; and
Corporate Entities.
However, following Persons/Investors will NOT be covered under
new CGT Regime:
Mutual fund;
Banking Company;
Non-Banking Finance Company;
Insurance Company;
Modaraba; and
any person or class of persons as notified by the FBR.
6
Overview and Procedures of the New 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.

New CGT Regime will NOT be applied on such
Person/Investor who Opted-Out.
7
Overview and Procedures of the New CGT Regime

Rates of CGT:
Year
Holding Period Less
than 12-Months
Holding Period is
12-Months but Less
than 24-Months
2014-15
12.50%
10.00%
 For Holding Period more than 24-Months no CGT will
be computed.
8
Overview and Procedures of the New CGT Regime
Types of Transactions Covered under New CGT Regime:

Market Based Transactions


Sale and Purchase Transactions including Day-Trading
Executed or to be Executed on the Trading Platform of the
Stock Exchanges.
Non-Market Transactions

Movement of Securities Through Free-Delivery (FD)
Mechanism of CDS.
9
Overview and Procedures of the New CGT Regime
General Principles for the Determination and
Computation of CGT

CGT will be Determined and Computed on the Transactions and their
Values as Reported to or Provided to or Extracted from the Systems of
Stock Exchanges, Central Depository Company of Pakistan Limited and
NCCPL.

First In First Out (FIFO) Inventory Accounting Method will be used.

In Determination and Computation of CGT, First Priority shall be given
to the Market Based Transactions.

Capital Loss in any Financial Year Shall be Set Off against Capital Gain
of that Financial Year.

Capital Loss in any Financial Year Shall NOT be Carried to a
Subsequent Financial Year.
10
Overview and Procedures of the New CGT Regime
General Principles for the Determination and
Computation of CGT

Fixed Cost of 0.50% on non-proprietary trades and 0.25% on
proprietary trades on Disposal or Acquisition of Securities, as the
case may be, in lieu of all Expenses will be Deducted or Added
while Determination and Computation of CGT.

However, such Fixed Cost shall only be allowed in respect of
Market Based Transactions.

Financing Cost Incurred through NCCPL’s Leveraged Market
Products shall be Taken into Account while Computing Capital
Gains.

CGT shall be Collected on Monthly Basis for Transactions Settled in
a Month, after Adjustment of Losses or Refund of amount collected
of the Previous Month or Months of the Same Financial Year.
11
Overview and Procedures of the New 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 or both made by NCCPL, such
Person/Investor may Re-Compute the Capital Gain and Lodge
Claim of Refund, if any, with the Commissioner of FBR.
12
Overview and Procedures of the New CGT Regime
General Principles for the Determination and
Computation of CGT

The Amount Collected by NCCPL, in respect of Capital Gains, on
behalf of the FBR, Shall be Deposited in a Separate Bank Account
with National Bank of Pakistan and such Amount Shall be Paid to
the FBR Along with Interest Accrued Thereon on Yearly Basis by
July 31.

In Case of Non-Recovery of CGT from any Person/Investor through
its Clearing Member, for any reason whatsoever, NCCPL Shall Refer
a Particular Case for Recovery of CGT to the FBR.

Defaulted Person/Investor may also be Restricted from Taking New
Positions in all Markets for a Period of Three Months and such
Restriction will be Continued till the Recovery of Amount of CGT.
13
Overview and Procedures of the New CGT Regime
General Principles for the Determination and
Computation of CGT

The Short or Non-Collection of CGT in any Month During the
Financial Year shall Continue to Appear in the CGT Liability of
Coming Month or Months of the Same Financial Year.

Relevant Clearing Member shall also be Penalized in accordance
with NCCPL Regulations.

Brokerage Account of the Persons/Investors shall NOT be Closed
Until and Unless such Persons/Investors Obtains a Clearance
Certificate from NCCPL.
14
Overview and Procedures of the New CGT Regime
General Principles for the Determination and
Computation of CGT


Following Certificate / Statement Shall be Issued and
Provided by NCCPL:

Annual Certificate Showing Computation of Capital Gains and Tax
thereon, if any, to each Eligible Person/Investor within Thirty Days
from the End of the Financial Year.

Quarterly Statement of Amount Collected from Eligible
Persons/Investors shall be Furnished to the FBR within Thirty Days
from the End of Each Quarter.
Every Person/Investor Shall also File the Annual Certificate,
as provided by NCCPL, Alongwith the Return of Income.
15
Explanation and
Treatment of Market
and Non-Market Based
Transactions
16
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
CGT Shall be
Computed as
per Rates in
accordance
with the
Holding Period
Squaring up
Transactions
in Ready,
Futures and
Derivatives
(Day-(Trading)
No Impact
on
Inventory
Average Purchase
Price
10% on the
Capital Gains,
if any.
Purchase/Acquisition
Tax Treatment
Sale/Disposal
Average Sale
Price of the
Security Sold
17
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Purchase/Acquisition
Sale/Disposal
Tax Treatment
Sale &
Purchase
through
Negotiated
Deal Market
(NDM)
Inventory
Taken Out/In
on FIFO
Basis on
Settlement
Date
Average
Purchase/
Acquisition Price
Deal Price or
Closing Price
at Ready
Market
whichever is
Higher
CGT Shall be
Computed as
per Rates in
accordance
with the
Holding Period
Transfer of
Securities
Owing to
Privatization
Inventory
Acquisition Price
Move-in the
Buyers’
Account and
Move-out
from
Privatization
Commission’s
(PC)Account.
Not Recorded
for PC.
No CGT for
Federal or
Provincial
Government
on Transfers.
18
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Tax Treatment
Purchase/Acquisition
Sale/Disposal
Transfer
Owing to
Acquisition
Inventory
Taken
In/Out on
FIFO Basis.
Purchase/Acquisition
Price
Actual
Selling or
Negotiated
or Quoted
Price as the
case may
CGT Shall be
Computed as
per Rates in
accordance
with the
Holding Period
Buy-back of
Shares
Inventory
Taken
In/Out on
FIFO Basis
Purchase/Acquisition
Price
Price Paid by
the Company
to Acquire
the Shares .
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
Pricing
Tax Treatment
Purchase/Acquisition
Sale/Disposal
N/A
Portfolio
Transfer –
where all
UINs are
Matching
No Impact
on the Age
of Inventory
Age
Original
Purchase/Acquisition
Price
Transfer /
Transmission
upon Death
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
N/A
20
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Transfer for /
against
GDRs -
GDRs are
Converted
into Shares
Transfer for /
against
GDRs Deposits into
Depository
and Get
GDRs
Pricing
Purchase/Acquisition
Tax Treatment
Sale/Disposal
Acquisition Closing Price of
of
the Date of
Inventory
Deposit
N/A
N/A
Inventory
Taken Out
on FIFO
Basis
Closing Price
of the Date of
Transfer
CGT Shall be
Computed as
per Rates in
accordance
with the
Holding Period
Purchase/Acquisition
Price
21
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
Shares are
Gift
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 N/A
hands of
Transferee
No CGT
22
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Tax Treatment
Purchase/Acquisition
Sale/Disposal
Pledge call
Inventory
shall be
Taken out
from the
Defaulter’s
Account
Average
Purchase/
Acquisition Price
Closing
Price of the
Date of the
Pledge Call
CGT will be
Computed as per
the Holding
Period.
Default in
Delivery by
Seller and
Subsequent
Squaring-up
by NCCPL
• No Impact
on Delivery
Defaulter.
Average
Purchase/
Acquisition Price
Square-up
Price
CGT Shall be
Computed as
per Rates in
accordance
with the
Holding Period
• Inventory
Taken Out
on FIFO
Basis From
the Squareup Seller
23
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Tax Treatment
Purchase/Acquisition
Sale/Disposal
Right Issue
Upon
Exercise of
Right or
Purchase,
Inventory
Recorded at
the Credit
Date
Subscription Cost
of the Right Shares
N/A
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.
24
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
Tax Treatment
Purchase/Acquisition
Sale/Disposal
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
25
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Tax Treatment
Purchase/Acquisition
Sale/Disposal
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
26
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Pricing
Tax Treatment
Purchase/Acquisitio
n
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
N/A
N/A
Transfer
under Taxable
Court Orders
Shares are
Transferred to
the Beneficiary
with the Date of
Transfer
Closing Price of
the Date of
Transfer
Closing Price
of the Date of
Transfer
CGT will be
Computed as per
the Holding
Period.
27
Explanation and Treatment of Market and Non-Market Based Transactions
Type of
Impact on
Transactions Inventory
Offer for
Sale
Securities are
Credited on
Acquisition
Date
Pricing
Tax Treatment
Purchase/Acquisitio
n
Sale/Disposal
Cost of
Acquisition
N/A
N/A
28
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 Re-Purchase).

Financial Charges incurred on Borrowing the Securities Shall be Taken into
Account while Computing CGT.

Tax to be collected @ 10% on Net Gain

CGT will Not be Applied on the Income of the Lender.
29
Thank you !
30
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