Capital gains tax collection falls 67pc in FY20

KARACHI: The collection of capital gains tax on disposal of securities at the stock exchange has registered 67 percent decline during fiscal year 2019/2020 owing to exemption granted on sales of securities after a certain time period.

According to official statistics of the Federal Board of Revenue (FBR) made available on Thursday, the collection of capital gains tax was at Rs515 million during fiscal year 2019/2020, as compared with Rs1.585 billion in the preceding fiscal year.

The FBR officials said that a major change was brought to the Income Tax Ordinance 2001, which granted exemption from capital gains tax.

They said the rates of tax for tax year 2020 on capital gains on disposal of shares and other specified securities were proposed to be kept at par with those applicable for tax years 2018 and 2019.

However, through Finance Act 2019, an explanation was added on exemption from deduction of tax on capital gains arising on disposal of securities, where holding period was more than four years. As per the explanation, such exemption from deduction of tax would be available only to mutual fund units or collective investment scheme or REIT scheme.

The performance of Pakistan Stock Exchange (PSX) showed a decline of 3.3 percent in fiscal year 2020/2021. According to a report Pakistan generated a negative return of 3.3 percent in the fiscal year under review.

The KSE-100 index closed the fiscal year with a positive return after two consecutive years in red, portraying a rupee based increase of 1.5 percent.

The analysts said that the performance of the outgoing fiscal year is in stark contrast to the last 10 – year performance of the benchmark index, which has depicted an average positive return of 15.4 percent.

They said that macroeconomic concerns were largely controlled before COVID-19 outbreak, especially on the external side, currency stability, and building up of foreign exchange reserves. However, post COVID-19 outbreak, the economy slowed down significantly amid introduction of a lockdown and overall decline in consumer spending.

The FBR officials said that the National Clearing Company of Pakistan (NCCPL) collects the capital gains tax and after netting off the gains and losses it deposited the amount of tax to the revenue authorities.

The NCCPL collects capital gains tax as per rates and procedures defined under Section 37A of Income Tax Ordinance 2001.