Official data reveals a significant decline of 26% in the annual collection of Capital Gain Tax (CGT) from the disposal of securities during the fiscal year 2020/2021.
The Federal Board of Revenue (FBR) reported a collection of Rs1.925 billion in CGT for the mentioned fiscal year, down from Rs2.595 billion in the preceding year.
The FBR’s collection mechanism for CGT involves the imposition of adjustable advance income tax under Section 147 (5B) of the Income Tax Ordinance, 2001, specifically targeting the sale of securities.
The applicable rates for advance income tax on capital gains are outlined as follows:
1. For securities held for a period of less than six months: a tax rate of two per cent is applied on the capital gains derived during the quarter.
2. For securities held for more than six months but less than twelve months: a tax rate of 1.5 per cent is levied on the capital gains derived during the quarter.
It is crucial to note that the advance tax is required to be paid to the Commissioner within twenty-one days after the close of each quarter, as stipulated by the Income Tax Ordinance, 2001.
However, the provisions of this sub-section are not applicable to individual investors, according to the Income Tax Ordinance, 2001.
The decline in CGT collection for the fiscal year 2020/2021 raises questions about the factors contributing to this decrease. Economic conditions, market dynamics, and changes in investor behavior are among the potential factors influencing the collection of taxes on capital gains from securities.
The FBR’s commitment to transparency and accountability is evident in its regular reporting of tax collection data, allowing stakeholders to analyze trends and patterns within the taxation landscape. As Pakistan’s financial landscape continues to evolve, understanding the dynamics of CGT collection provides valuable insights for policymakers and investors alike.
The coming fiscal years will likely witness continued scrutiny of CGT collection and adjustments to tax policies to align with the changing economic environment, ensuring a fair and effective taxation system.