SHC asks govt to refund capital gains taxes deducted in 2014/15

KARACHI: The Sindh High Court (SHC) gave a major blow to the government by putting on hold the capital gains tax levied on share sales during the fiscal year of 2014/15, terming it unlawful, and also directed the tax authorities to refund the taxpayers’ money.

The stocks brokers are unclear on the amount deducted in the fiscal year, but they estimated it could be in billions of rupees. “Any capital gains made on the disposal of shares at time during this period could not be brought to tax, if such shares had been held for a period of 12 months or more as on the date of disposal,” the court declared in its decision on Tuesday on the petitions filed by Karachi-based shareholders. 

“Any tax levied, paid or collected in any manner whatsoever in respect of any capital gains… was unlawful and is liable to be quashed and set aside with the result that the taxpayer shall be entitled to suitable refund/adjustment in respect of any such tax as has been paid or collected.” 

A top broker, on condition of anonymity, told The News that the amount must be in billions of rupees.  Muhammad Lukman, chief executive officer at the National Clearing Company of Pakistan Limited (NCCPL), said it would be difficult to immediately calculate the ‘said amount’. “It will take time to work out the actual numbers,” he said, referring to thousands of shareholders who might be the possible claimants.

Chairman NCCPL was one the respondents in the case that include law ministry, the Federal Board of Revenue, chief commissioner Inland Revenue and chairman Karachi Stock Exchange.  The petitioners raised issues in relation to the section 37 A inserted into the Income Tax Ordinance 2001 and that said the capital gain arising on or after the first day of July 2010 from disposal of securities held for a period of less than a year, “shall be chargeable to [certain] tax rates.”

The petitioners held shares in the listed companies, which they bought and sold time to time. Their legal counsel submitted that a person acquired vested rights in respect of the section. “Thus when the shares were disposed off the section didn’t apply as they stood on the date of the sale,” said the counsel. “There was no tax liability.”

The imposed tax was retrospective in nature, which is unfair, said the broker.  The FBR, however, denied the tax incidence as retrospective in its reply submitted to the SHC. 

“The contention that the amendments made vide Finance Act 2014 would be applicable in respect of those shares/securities which are purchased on or after the first July 2014 is not based on correct legal premise,” the apex tax authority said. “If this contention is accepted it would mean that in respect of any investment no change in taxation including the rate of tax would ever be possible and the rates of tax and other provisions applicable in the year of investment would remain application throughout the life of investment.”