Regime of Capital Gain Tax- CGT Presentation NCCPL 1

Regime of Capital Gain Tax-CGT

Presentation

NCCPL NCCPL

1

Back Ground of CGT Back Ground of CGT Regime Regime

2

3

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.

Back Ground of CGT RegimeBack Ground of CGT Regime

4

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.

Back Ground of CGT RegimeBack Ground of CGT Regime

Overview and Overview and Procedures of CGT Procedures of CGT

RegimeRegime

5

6

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.

Overview and Procedures of CGT RegimeOverview and Procedures of CGT Regime

7

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:

For holding period more than 24 - months no CGT will be computed.


Tax Year Holding period less than 1 year

Holding period greater than 1 year but less than 2 years

2015 12.5% 10%

8

Principles of Holding Period of Inventory Before the Promulgation of CGT Regime

Same principles of holding period of inventory has been applied on Foreign Institutional Investors with necessary modifications.


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.

9

Principles for Physical Securities Deposited into CDS

Same principles for Physical Securities Deposited into CDS has been applied on Foreign Institutional Investors with necessary modifications.


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.

10

General Principles for the Determination andComputation 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.


11


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 NCCPL’s 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.


12


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.


13


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.


Explanation and Explanation and Treatment of Market Treatment of Market

and Non-Market and Non-Market Based TransactionsBased Transactions

14

15

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

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

16



Impact on Inventory


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

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.

17



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

Purchase/Acquisition Price

Price Paid by the Company to Acquire the Shares .

18



Impact on Inventory


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

19



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

Purchase / Acquisition Price

Closing Price of the Date of Transfer


20



Impact on Inventory

Pricing Tax Treatment Purchase/Acquisition Sale /

Disposal

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

21



Impact on Inventory


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

Average Purchase/Acquisition Price

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

Average Purchase /Acquisition Price

Square-up Price

22



Impact on Inventory

Pricing Tax Treatment

Purchase/Acquisition Sale/Disposal

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

Ex-Price N/A NA.

Offer for Sale

Securities are Credited on Acquisition Date

Cost of Acquisition N/A N/A

23



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

24



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 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

25



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.

26

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.


Thank Thank youyou !

27

Documents

Regime of Capital Gain Tax- CGT Presentation NCCPL 1