KARACHI: The Federal Board of Revenue (FBR) has been urged to grant capital gain tax (CGT) exemption on disposal of shares of private companies after 10 years.

Karachi Tax Bar Association (KTBA) in its proposals for budget 2022/2023 suggested amendment in Section 37 of the Income Tax Ordinance, 2001 regarding gain on sale of shares of private companies.

READ MORE: KTBA proposes up to 20% capital gain tax on real estate

The tax bar said as per section 37 of the Ordinance, gain on sale of shares of private companies’ shares is taxed at corporate tax rate. This gain is reduced by 25 per cent in case the holding period is more than one year.

In case of gain on disposal of immovable property, the gain is exempt in case the holding period is more than 4 years. In case of capital gain on securities U/s. 37A, the gain is exempt on securities acquired before 1 July 2012.

READ MORE: FBR urged to issue rules for WHT on digital transactions

“Hence, investment in shares of Private companies stands at comparative disadvantage,” the KTBA said.

It is proposed that the gain on sale of private company shares should also be allowed exemption in case if the holding period is 10 years or more. In order to encourage and benefit corporatization of business.

The tax bar also recommended amended to Section 2(19)(d) of the Income Tax Ordinance, 2001 regarding buy back of shares.

READ MORE: New import income tax regime should be abolished

As per definition of dividend the distribution made by a company to its shareholders on reduction of capital shall be deemed dividend. This situation is generally referred to as Buy-back of shares.

On the other hand, under Rule 13P of the Income Tax Rules, 2002, the shares buy-back transaction is treated as Capital Gains. Thus, there exists a contradiction among the provisions of Ordinance and Rules.

Contradictory provisions in law that needs to be corrected, the tax bar said, adding that in principal, buy back of shares cannot be equated as alienation of shares and should not be covered U/s. 37A of the Ordinance.

READ MORE: Adjustable advance tax proposed for corporate services

Necessary clarification should be issued and Rule 13P be amended to align within the law in order to align the various provisions of law.

The tax also proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.

The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.

READ MORE: FBR proposed to restore group taxation in original form

The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”

KARACHI: Karachi Tax Bar Association (KTBA) has proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.

The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.

READ MORE: FBR urged to issue rules for WHT on digital transactions

The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”

READ MORE: New import income tax regime should be abolished

It proposed that a new head of income in Section 11 of Income Tax Ordinance 2001 should be added as income from disposal and trading of real estate containing progressive taxation, without allowing any exemption as to holding period and quantum of gain:

Where holding period is two years the rate of tax on gain should be 20 per cent

Where holding period is five years the rate of tax on gain should be 17.50 per cent

READ MORE: Adjustable advance tax proposed for corporate services

Where holding period is ten years the rate of tax on gain should be 15 per cent

Where holding period is more than ten years the tax on gain should be 10 per cent

The tax bar further proposed a separate definition of income from disposal and trading of real estate.

READ MORE: FBR proposed to restore group taxation in original form

Other regulatory amendments recommended by the tax bar are included: Restriction of individual holding of real estate properties [save Single member company]- Transfer of Properties Act 1882 to be amended; A separate ‘Real Estate Regulatory Authority’ is suggested; Aside Director General Commissioner be empowered to seek report from valuer on any transaction of Real Estate Trading

Giving rationale to the proposal, the KTBA said this will strengthen the taxation system and will able to collect tax from elite class.

KARACHI: The Federal Board of Revenue (FBR) has been urged to notify procedures and rules in the forthcoming budget 2022/2023 for deducting withholding tax (WHT) on digital transactions.

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KARACHI: The tax authorities have been urged to abolish the advance income tax regime at import stage and reinstate the previous regime through budget 2022/2023.

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