New Regime of Capital Gain Tax CGT

New Regime of Capital Gain
Tax-CGT
NCCPL
Presentation July 30, 2012
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;
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.
6
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
Rates of CGT:
Year Holding Period Less Holding Period is 6-
than 6-Months Months but Less
than 12-Months
2011 10% 7.5%
2012 10% 8.00%
2013 10% 8.00%
2014 10% 8.00%
2015 17.5% 9.5%
2016 - 10%
For Holding Period more than 12-Months no CGT will

be computed.
8
Principles of Holding Period of Inventory Before the Promulgation

of New CGT Regime
S.NO. Holding Period Inventory Age Price

1. Securities Balance As- More than One Year Closing Price of
Of 23rd April 2011 23rd April 2011
2. Securities have been Determined as per Market-Based

Acquired or Disposed the Actual Transactions-
off Between 24th April Acquisition and Transaction
2011 to 23rd April 2012. Disposal Price
Non-Market-
Based
Transactions-
Deal Price or
Closing Price, as
the case may be.
9
Principles for Physical Securities Deposited into CDS
S.NO. Deposit of Physical Inventory Age Price

Securities
1. Physical Securities The Date of Closing Price of

have been deposited in Acquisition shall be 23rd April 2011
CDS Between 24th Deemed as 23rd
April 2011 to 23rd April April 2011
2012
2. Physical Securities Actual Date of Prevailing

have been deposited in Acquisition as Closing Price of
CDS on or after 24th Communicated by the Deposited
April 2012 CDS. But it should Date.
not be Earlier than
23rd April 2011.
10
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.
11
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.
12

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 NCCPLs 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.
13

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.
Persons/Investors (covered under new CGT Regime) Shall NOT be

Required to Maintain Records and Accounts w.r.t CGT.
Wash Sales, Cross Trades and Tax Swap Sales Shall not be Taken
into Account by NCCPL while computing Capital Gains.
14

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.
15

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.
16

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.
17
Holding Period of
Investment
18
Holding Period of Investment
Investment Has Been Classified in Two Broad

Categories:
Investment Made in Listed Securities Prior to the

Promulgation of the Finance (Amendment) Ordinance, 2012
effective from April 24,2012.
Investment in Listed Securities from the Date of the Promulgation of

the Finance (Amendment) Ordinance, 2012 effective from April 24,
2012.
19
Holding Period of Investment
Investment Category Determination of Requirement to for

Investment Holding Period
Investment Made in Listed A. The amount of The Amount of Investment
Securities Prior to the investment shall be Shall be Required to
Promulgation of the netted off with the Remain Invested for the
Finance (Amendment) market value of net Period or Periods in
Ordinance, 2012 effective open sale position in Aggregate of 45-Days till
from April 24,2012 Futures and Derivative June 30, 2012.
Contract .
Investment in Listed The Amount of Investment
Securities From the Date B. The Investment shall Shall be Required to
of the Promulgation of the be the Time Weighted Remain Invested for the
Finance (Amendment) Average of the Period or Periods in
Ordinance, 2012 effective Invested Amounts Aggregate of 120-Days till
from April 24, 2012 June 30, 2014.
20
Explanation and
Treatment of Market
and Non-Market Based
Transactions
21
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 CGT Shall be

Purchase of Taken Acquisition Price Price of the Computed as
Securities Out/In on Security Sold per Rates in
Through FIFO accordance
Trading Basis on with the
Systems Settlement Holding Period
Date
Squaring up No Impact Average Purchase Average Sale 10% on the
Transactions on Price Price of the Capital Gains,
in Ready, Inventory Security Sold if any.
Futures and
Derivatives
(Day-(Trading)
22

Sale & Inventory Average Deal Price or CGT Shall be
Purchase Taken Out/In Purchase/ Closing Price Computed as
through on FIFO Acquisition Price at Ready per Rates in
Negotiated Basis on Market accordance
Deal Market Settlement whichever is with the
(NDM) Date Higher Holding Period
Transfer of Inventory Acquisition Price Not Recorded No CGT for

Securities Move-in the for PC. Federal or
Owing to Buyers
Account and
Provincial
Privatization
Move-out Government
from on Transfers.
Privatization
Commissions
(PC)Account.
23

Transfer Inventory Purchase/Acquisition Actual CGT Shall be

Owing to Taken Price Selling or Computed as
Acquisition In/Out on Negotiated per Rates in
FIFO Basis. accordance
or Quoted
with the
Price as the Holding Period
case may
Buy-back of Inventory Purchase/Acquisition Price Paid by CGT Shall be
Shares Taken Price the Company Computed as
In/Out on to Acquire per Rates in
FIFO Basis accordance
the Shares .
with the
Holding Period
24

Portfolio No Impact Original N/A N/A

Transfer on the Age Purchase/Acquisition
where all of Inventory Price
Age
UINs are
Matching
Transfer / Shares are Original N/A

Transferred to
N/A
Transmission Purchase/Acquisition
the Beneficiary
upon Death with the same Price as was in the
Date of hands of Deceased
Acquisition as Person
was in the
hands of
Deceased
Person
25

Transactions Inventory Purchase/Acquisition Sale/Disposal
Transfer for / Acquisition Closing Price of N/A N/A

against of the Date of
GDRs - Inventory Deposit
GDRs are
Converted
into Shares
Transfer for / Inventory Purchase/Acquisition Closing Price CGT Shall be

against Taken Out 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
26

Reversal of Inventory Closing Price of N/A No CGT

Erroneous Taken In/ the Transaction
Transfers Out on Date
FIFO Basis
Gift Shares are Cost as was in the N/A No CGT

Transactions Transferred hands of
to the
Beneficiary
Transferee
with the same
Date of
Acquisition as
was in the
hands of
Transferee
27

Pledge call Inventory Average Closing CGT will be

Price of the Computed as per
shall be Purchase/ the Holding
Taken out Acquisition Price Date of the
Period.
Pledge Call
from the
Defaulters
Account
Default in No Impact Average Square-up CGT Shall be
on Delivery Price Computed as
Delivery by Defaulter.
Purchase/
Seller and Acquisition Price per Rates in
Inventory
accordance
Subsequent
Taken Out with the
Squaring-up Holding Period
on FIFO
by NCCPL Basis From
the Square-
up Seller
28

Right Issue Upon Subscription Cost N/A N/A (However,
Exercise of of the Right Shares LoR trading
Right or shall be
Purchase, subject to CGT
Inventory @ 10%)
Recorded at
the Credit
Date
Bonus Inventory Zero-Price N/A NA.

Shares Recorded at (Different
the Bonus
Credit Date
Treatment
provided in Draft
Rules)
29

De-Merger Existing Same Cost of N/A N/A
Companys
Shareholding is Acquisition of the
Reduced with the Existing Company
Revised
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
30

Transactions Inventory Purchase/Acquisition
Sale/Disposal
Specie Shares will be Zero Price Deal Price on CGT Shall be
Dividend Added in the (Different Issuing Computed for
Share Holders Treatment Company Issuing
Account at the provided in Draft Company as
Date on which Rules) per Rates in
Shares are accordance
Credited. with the Holding
Period .
Capital Inventory Cost of Acquisition N/A N/A

Reduction / Replaced and of New Shares will
Splitting of Adjusted as Remain Same, as it
was for Existing
Shares / per Ratio or
Shares
Conversion Division.
31

Purchase/Acquisitio Sale/Disposal
n
Transfer Shares are Cost as was in N/A N/A
under Tax- Transferred to the Hands of
the Beneficiary
Neutral with the same
Transferee
Court Date of
Orders Acquisition as
was in the
hands of
Transferee
Transfer Shares are Closing Price of Closing Price CGT will be
under Taxable Transferred to the Date of of the Date of Computed as per
Court Orders the Beneficiary Transfer Transfer the Holding
with the Date of Period.
Transfer
32

Purchase/Acquisitio Sale/Disposal
n
Offer for Securities are Cost of N/A N/A

Sale Credited on Acquisition
Acquisition
Date
33
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.
34
Thank you !
35

New Regime of Capital Gain Tax CGT

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New Regime of Capital Gain Tax CGT

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New Regime of Capital Gain

Presentation July 30, 2012

The SECP as a part of its mandate to develop Capital

This was Intended to Provide Ease of Calculation and

Accordingly, NCCPL shall be Responsible to Compute,

CGT Rules have been revised though the promulgation of

New section 100(B) has been inserted in the Income Tax

For detailed treatment of CGT, following new Rules and

Rules for the Computation of CGT on Listed Securities have been

Special Procedures for Computation of Capital Gains and

Following are the Persons/Investors to which new CGT Regime will

However, following Persons/Investors will NOT be covered under

Any Person/Investor may Opt-Out from the new

For Opting-Out, Person/Investor shall be required

New CGT Regime will NOT be applied on such

For Holding Period more than 12-Months no CGT will

Principles of Holding Period of Inventory Before the Promulgation

S.NO. Holding Period Inventory Age Price

2. Securities have been Determined as per Market-Based

Principles for Physical Securities Deposited into CDS

S.NO. Deposit of Physical Inventory Age Price

1. Physical Securities The Date of Closing Price of

2. Physical Securities Actual Date of Prevailing

Types of Transactions Covered under New CGT Regime:

Market Based Transactions

Sale and Purchase Transactions including Day-Trading

Movement of Securities Through Free-Delivery (FD)

General Principles for the Determination and

First In First Out (FIFO) Inventory Accounting Method will be used.

In Determination and Computation of CGT, First Priority shall be given

Capital Loss in any Financial Year Shall NOT be Carried to a

General Principles for the Determination and

However, such Fixed Cost shall only be allowed in respect of

Financing Cost Incurred through NCCPLs Leveraged Market

CGT shall be Collected on Monthly Basis for Transactions Settled in

General Principles for the Determination and

Any Person/Investor, if Not Satisfied with the Computation of

Persons/Investors (covered under new CGT Regime) Shall NOT be

General Principles for the Determination and

The Amount Collected by NCCPL, in respect of Capital Gains, on

In Case of Non-Recovery of CGT from any Person/Investor through

Defaulted Person/Investor may also be Restricted from Taking New

General Principles for the Determination and

The Short or Non-Collection of CGT in any Month During the

Relevant Clearing Member shall also be Penalized in accordance

Brokerage Account of the Persons/Investors shall NOT be Closed

General Principles for the Determination and

Annual Certificate Showing Computation of Capital Gains and Tax

Every Person/Investor Shall also File the Annual Certificate,

Investment Has Been Classified in Two Broad

Investment Made in Listed Securities Prior to the

Investment in Listed Securities from the Date of the Promulgation of

Investment Category Determination of Requirement to for

Type of Impact on Pricing Tax Treatment

Sale & Inventory Average Purchase/ Average Sale CGT Shall be

Type of Impact on Pricing Tax Treatment

Transfer of Inventory Acquisition Price Not Recorded No CGT for

Type of Impact on Pricing Tax Treatment

Transfer Inventory Purchase/Acquisition Actual CGT Shall be

Type of Impact on Pricing Tax Treatment

Portfolio No Impact Original N/A N/A

Transfer / Shares are Original N/A

Type of Impact on Pricing Tax Treatment