New Regime of Capital Gain Tax-CGT

New Regime of Capital Gain Tax-CGT NCCPL Presentation July 30, 2012

Back Ground of New CGT Regime

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.

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 Securitieshave 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.

Overview and Procedures of the New CGT Regime

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; • ‘Foreign Institutional Investor’ being a person registered with NCCPL as a foreign institutional investor; and • any person or class of persons as notified by the FBR.

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.

Overview and Procedures of the New CGT Regime • Rates of CGT: • For Holding Period more than 12-Months no CGT will be computed.

Overview and Procedures of the New CGT Regime Principles of Holding Period of Inventory Before the Promulgation of New CGT Regime

Overview and Procedures of the New CGT Regime Principles for Physical Securities Deposited into CDS

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.

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.

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.

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 Gainsof 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.

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 Alongwith 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.

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.

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.

Explanation and Treatment of Market and Non-Market Based Transactions

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.

Thank you !

New Regime of Capital Gain Tax-CGT