KARACHI: Federal budget FY22 has proposed reduction in tax rate on capital gain tax (CGT) on disposal of securities to 12.5 percent from existing rate of 15 percent.

According to the proposed amendment in the First Schedule of the Income Tax Ordinance 1969, the capital gain tax on securities held for less than a year will be 12.5 percent and zero percent for securities held for over 12 months.

Moreover, capital gains tax on future commodity contracts entered   into   by   members   of Pakistan Mercantile Exchange would remain unchanged at 5.0 percent.

CEO of Topline Securities Muhammad Sohail said it was a spending led confidence building budget exercise.

“Good for stock market wherein capital gain tax (CGT) has been reduced and withholding tax on margin financing is abolished.” “However, the biggest challenge will be to deal with IMF and rising commodity prices”.

To recall, in the budget proposals, Pakistan Stock Exchange (PSX) noted the current tax rate of 15 percent on capital gain on disposal of securities was very high and that too without any benefit of holding period and is higher than the rates on sale of immovable property which are ranging from 2.5 percent to 10 percent based on various slabs of capital gains.

Currently, carry forward of losses is allowed up to a period of three years. Last year and the year before CGT collection was merely Rs2.1 billion and Rs1.3 billion respectively.

Moreover, brought forward losses amounting to Rs232 billion are available to be adjusted against future capital gains, therefore CGT collection will continue to be negligible.

Commenting on the reduction in CGT rates, CEO of Alpha Beta Core Khurram Schehzad said it was good development for stock market alongside sector-wise developments including reducing turnover tax, tax on small cars, tax on financing and a lot more.

“The reduction in CGT will be a big headline incentive to attract new local and foreign shareholders without any significant loss of tax revenue and in fact over some time is likely to be revenue positive”.