New Regime of Capital Gain Tax-CGT

New Regime of Capital Gain Tax-CGT

Presentation July 30, 2012

NCCPL NCCPL

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Back Ground of New Back Ground of New CGT Regime CGT Regime

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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 RegimeBack Ground of the New CGT Regime

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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.

Back Ground of the New CGT RegimeBack Ground of the New CGT Regime

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Overview and Overview and Procedures of the Procedures of the New CGT RegimeNew CGT Regime

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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 Overview and Procedures of the New CGT RegimeRegime

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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.


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Rates of CGT:

For Holding Period more than 12-Months no CGT will be computed.


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Year Holding Period Less than 6-Months

Holding Period is 6-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%

Principles of Holding Period of Inventory Before the Promulgationof New CGT Regime


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S.NO. Holding Period Inventory Age Price

1. Securities Balance As-Of 23rd April 2011

More than One Year Closing Price of 23rd April 2011

2. Securities have been Acquired or Disposed off Between 24th April 2011 to 23rd April 2012.

Determined as per the Actual Acquisition and Disposal

Market-Based Transactions- Transaction Price Non-Market-Based Transactions- Deal Price or Closing Price, as the case may be.

Principles for Physical Securities Deposited into CDS


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S.NO. Deposit of Physical Securities

Inventory Age Price

1. Physical Securities have been deposited in CDS Between 24th April 2011 to 23rd April 2012

The Date of Acquisition shall be Deemed as 23rd April 2011

Closing Price of 23rd April 2011

2. Physical Securities have been deposited in CDS on or after 24th April 2012

Actual Date of Acquisition as Communicated by CDS. But it should not be Earlier than 23rd April 2011.

Prevailing Closing Price of the Deposited Date.

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.


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General Principles for the Determination andComputation 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.


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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.


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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.


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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.


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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.


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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.


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Holding Period of Holding Period of Investment Investment

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Investment Has Been Classified in Two BroadInvestment Has Been Classified in Two Broad

Categories: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.

Holding Period of InvestmentHolding Period of Investment

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Holding Period of InvestmentHolding Period of Investment

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Investment Category Determination of Investment

Requirement to for Holding Period

Investment Made in Listed Securities Prior to the Promulgation of the Finance (Amendment) Ordinance, 2012 effective from April 24,2012

A. The amount of investment shall be netted off with the market value of net open sale position in Futures and Derivative Contract .

B. The Investment shall be the Time Weighted Average of the Invested Amounts

The Amount of Investment Shall be Required to Remain Invested for the Period or Periods in Aggregate of 45-Days till June 30, 2012.

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

The Amount of Investment Shall be Required to Remain Invested for the Period or Periods in Aggregate of 120-Days till June 30, 2014.

Explanation and Explanation and Treatment of Market Treatment of Market

and Non-Market and Non-Market Based TransactionsBased Transactions

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Explanation and Treatment of Market and Non-Market Based Explanation and Treatment of Market and Non-Market Based TransactionsTransactions

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Type of Transactions

Impact on Inventory

Pricing Tax Treatment Purchase/Acquisition Sale/Disposal

Sale & Purchase of Securities Through Trading Systems

Inventory Taken Out/In on FIFO Basis on Settlement Date

Average Purchase/Acquisition Price

Average Sale Price of the Security Sold

CGT Shall be Computed as per Rates in accordance with the Holding Period

Squaring upTransactionsin Ready,Futures andDerivatives (Day-(Trading)

No Impact on Inventory

Average Purchase Price

Average Sale Price of the Security Sold

10% on the Capital Gains, if any.


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Impact on Inventory

Pricing Tax Treatment

Purchase/Acquisition

Sale/Disposal

Sale & Purchase through Negotiated Deal Market (NDM)

Inventory Taken Out/In on FIFO Basis on Settlement Date


Deal Price or Closing Price at Ready Market whichever is Higher


Transfer of Securities Owing to Privatization

Inventory Move-in the Buyers’ Account and Move-out from Privatization Commission’s (PC)Account.

Acquisition Price Not Recorded for PC.

No CGT for Federal or Provincial Government on Transfers.


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Impact on Inventory


TransferOwing toAcquisition

Inventory Taken In/Out on FIFO Basis.

Purchase/Acquisition Price

Actual Selling or Negotiated or Quoted Price as the case may


Buy-back of Shares

Inventory Taken In/Out on FIFO Basis


Price Paid by the Company to Acquire the Shares .



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Impact on Inventory


Purchase/Acquisition Sale/Disposal

Portfolio Transfer – where all UINs are Matching

No Impact on the Age of Inventory Age

Original Purchase/Acquisition Price

N/A N/A

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


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Impact on Inventory


Transfer for / against GDRs - GDRs are Converted into Shares

Acquisition of Inventory

Closing Price of the Date of Deposit

N/A N/A

Transfer for / against GDRs - Deposits into Depository and Get GDRs

Inventory Taken Out on FIFO Basis


Closing Price of the Date of Transfer



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Impact on Inventory


Reversal of Erroneous Transfers

Inventory Taken In/ Out on FIFO Basis

Closing Price of the Transaction Date

N/A No CGT

Gift Transactions

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 No CGT


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Impact on Inventory


Pledge call Inventory shall be Taken out from the Defaulter’s Account


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.

• Inventory Taken Out on FIFO Basis From the Square-up Seller


Square-up Price



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Impact on Inventory


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

InventoryRecorded atthe BonusCredit Date

Zero-Price (Different Treatment provided in Draft Rules)

N/A NA.


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Impact on Inventory


De-Merger Existing Company’s Shareholding is Reduced with the Revised Shareholding. New Shareholding in the New Company With the Same Date of Acquisition of Existing Company

Same Cost of Acquisition of the Existing Company

N/A N/A

Merger No changeIn Ownership

ExtinguishedSecurityReplaced withNew Securitywith MergerRatio

Price Adjusted in Accordance with the Merger Ratio

N/A N/A


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Impact on 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 (Different Treatment provided in Draft Rules)

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


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Impact on Inventory

Pricing Tax Treatment Purchase/Acquisition

Sale/Disposal

Transfer under Tax-Neutral 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



CGT will be Computed as per the Holding Period.


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Impact on Inventory


Purchase/Acquisition Sale/Disposal

Offer for Sale

Securities are Credited on Acquisition

Date

Cost of Acquisition

N/A N/A

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.


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Thank Thank youyou !

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Documents

New Regime of Capital Gain Tax-CGT