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Regime of Capital Gain Tax-

CGT

NCCPL

Presentation

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Back Ground of CGT
Regime

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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.

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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.
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Overview and
Procedures of CGT
Regime

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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.

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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 Opted-


Out.

CGT Rates:
Tax Year Holding period less Holding period greater than
than 1 year 1 year but less than 2 years
2015 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 Price
Age
1. Securities Balance More than Closing Price of 23rd April 2011
As-of 23rd April 2011 One Year

2. Securities have been Determined Market-Based Transactions-


Acquired or Disposed as per the Transaction Price
off Between 24th April Actual
2011 to 23rd April Acquisition Non-Market-Based
2012. and Disposal 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 Inventory Age Price
Securities

1. Physical Securities have The Date of Closing Price of


been deposited in CDS Acquisition shall be 23rd April 2011
Between 24th April 2011 Deemed as 23rd
to 23rd April 2012 April 2011

2. Physical Securities have Actual Date of Prevailing


been deposited in CDS Acquisition as Closing Price of
on or after 24th April Communicated by the Deposited
2012 CDS. But it should Date.
not be Earlier than
23rd April 2011.
Same principles for Physical Securities Deposited into CDS has been
applied on Foreign Institutional Investors with necessary modifications.

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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.

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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 NCCPLs 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.

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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.
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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.

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Explanation and
Treatment of Market
and Non-Market Based
Transactions

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment


Transactions Inventory
Purchase/Acquisition Sale/Disposal

Sale & Inventory Average Purchase/ Average Sale


Purchase of Taken Acquisition Price Price of the
Securities Out/In on Security Sold
Through FIFO CGT Shall be
Trading Basis on Computed as
Systems Settlement per Rates in
Date accordance
with the
Squaring up No Impact Average Purchase Average Sale
Holding Period
Transactions on Price Price of the
in Ready, Inventory Security Sold
Futures and
Derivatives
(Day-
(Trading)
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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment


Transactions Inventory Purchase/Acquisition Sale/Disposal

Sale & Inventory Deal Price or Deal Price or CGT Shall be


Purchase Taken Out/In Closing Price at Closing Price Computed as
through on FIFO Ready Market at Ready per Rates in
Negotiated Basis on whichever is Market accordance
Deal Market Settlement Higher whichever is with the
(NDM) Date Higher Holding Period

Transfer of Inventory Acquisition Price Not No CGT for


Securities Move-in the Recorded for Federal or
Owing to Buyers PC. Provincial
Privatization Account and Government
Move-out on Transfers.
from
Privatization
Commissions
(PC)Account.
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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment


Transactions Inventory
Purchase/Acquisition Sale/Disposal

Transfer Inventory Purchase / Actual Selling


Owing to Taken Acquisition Price or Negotiated
Acquisition In/Out on or Quoted
FIFO Basis. Price as the CGT Shall be
case may Computed as
per Rates in
accordance
Buy-back of Inventory Purchase/Acquisitio Price Paid by with the
Shares Taken n Price the Company Holding Period
In/Out on to Acquire
FIFO Basis the Shares .

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax


Transactions Inventory Treatment
Purchase/Acquisition Sale/Disposal

Portfolio No Impact on the Original Purchase N/A N/A


Transfer Age of Inventory / Acquisition Price
where all Age
UINs are
Matching

Transfer / Shares are Original Purchase N/A N/A


Transmission Transferred to / Acquisition Price
upon Death the Beneficiary as was in the
with the same hands of
Date of Deceased Person
Acquisition as
was in the hands
of Deceased
Person
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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment


Transactions Inventory Purchase/Acquisition Sale/Disposal

Transfer for / Acquisition Closing Price of the N/A N/A


against of Inventory Date of Deposit
GDRs -
GDRs are
Converted
into Shares

Transfer for / Inventory Purchase / Closing Price CGT Shall be


against Taken Out Acquisition Price of the Date of Computed as
GDRs - on FIFO Transfer per Rates in
Deposits into Basis accordance
Depository with the
and Get Holding Period
GDRs

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment


Transactions Inventory Purchase/Acquisition Sale /
Disposal
Reversal of Inventory Closing Price of the N/A No CGT
Erroneous Taken In / Out Transaction Date
Transfers on FIFO Basis

Gift Shares are Cost as was in the N/A No CGT


Transactions Transferred to hands of
the Beneficiary Transferee
with the same
Date of
Acquisition as
was in the
hands of
Transferee

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax


Transactions Inventory Purchase/Acquisition Sale/Disposal Treatment
Pledge call Inventory Average Purchase/ Closing Price
shall be Acquisition Price of the Date of
Taken out the Pledge
from the Call
Defaulters
Account CGT will be
Default in No Impact Average Purchase / Square-up Computed as
Delivery by on Delivery Acquisition Price Price per the
Seller and Defaulter. Holding
Subsequent Period.
Squaring-up Inventory
by NCCPL Taken Out
on FIFO
Basis From
the Square-
up Seller
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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment


Transactions Inventory Purchase/Acquisition Sale/Disposal
Right Issue Upon Exercise Subscription Cost N/A N/A (However,
of Right or of the Right Shares LoR trading
Purchase, shall be subject
Inventory to CGT @
Recorded at 10%)
the Credit Date
Bonus Inventory Ex-Price N/A NA.
Shares Recorded at
the Bonus
Credit Date
Offer for Securities are Cost of Acquisition N/A N/A
Sale Credited on
Acquisition
Date

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax


Transactions Inventory Purchase/Acquisition Sale/Disposal Treatment

De-Merger Existing Companys Same Cost of N/A N/A


Shareholding is
Acquisition of the
Reduced with the
Revised Existing Company
Shareholding.

New Shareholding in
the New Company
With the Same Date
of Acquisition of
Existing Company

Merger No change Price Adjusted in N/A N/A


In Ownership
Accordance with
Extinguished the Merger Ratio
Security
Replaced with
New Security
with Merger
Ratio
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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment


Transactions Inventory
Purchase/Acquisitio Sale/Disposal
n
Specie Shares will be Zero Price Deal Price on CGT Shall be
Dividend Added in the Issuing Computed for
Share Holders Company Issuing
Account at the Company as
Date on which per Rates in
Shares are accordance
Credited. with the Holding
Period .

Capital Inventory Cost of N/A N/A


Reduction / Replaced and Acquisition of
Splitting of Adjusted as per New Shares will
Shares / Ratio or Remain Same, as
Conversion Division. it was for Existing
Shares
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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment


Transactions Inventory Purchase/Acquisition
Sale/Disposal
Transfer Shares are Cost as was in N/A N/A
under Tax- Transferred to the Hands of
Neutral the Beneficiary Transferee
Court with the same
Orders Date of
Acquisition as
was in the
hands of
Transferee
Transfer Shares are Closing Price of Closing CGT will be
under Transferred to the Date of Price of the Computed as
Taxable the Beneficiary Transfer Date of per the
Court with the Date of Transfer Holding
Orders Transfer Period.

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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 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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