Karachi, December 25, 2024 – The Federal Board of Revenue (FBR) has recorded an impressive 135% increase in the collection of capital gains tax (CGT) during the first five months of the fiscal year 2024-25 (5MFY25).
This substantial growth underscores the FBR’s effective enforcement measures and improved tax compliance mechanisms.
According to FBR sources, CGT revenue surged to Rs 12.14 billion, a significant rise from the Rs 5.16 billion collected during the same period of the previous fiscal year. This remarkable performance reflects the government’s strategic efforts to enhance tax collection and broaden the revenue base.
The CGT is levied under Section 37A of the Income Tax Ordinance, 2001, which governs the taxation of capital gains arising from the disposal of securities. The FBR applies this provision to a wide range of financial instruments, including public company shares, Modaraba certificates, corporate and government debt securities, exchange-traded funds, and derivative products.
Key Features of Section 37A
Section 37A outlines the key rules for computing and taxing capital gains:
1. Applicability and Tax Rates
o The FBR taxes capital gains on the disposal of securities, except for transactions explicitly exempt under the Income Tax Ordinance.
o Exemptions include certain listed shares disposed of outside registered stock exchanges or IPO shares not reported to the National Clearing Company of Pakistan Limited (NCCPL).
2. Calculation Formula
o The formula for computing capital gains is the difference between the consideration received (A) and the cost of acquisition (B).
3. Holding Period
o The holding period is determined by the interval between the acquisition and disposal dates.
4. Loss Offset Rules
o Losses from securities disposal can only be offset against gains from other securities during the same tax year. Unused losses may be carried forward for up to three years.
5. Defined Securities
o Instruments classified as securities include shares, Sukuk, Treasury Bills, Pakistan Investment Bonds, and derivative products traded on platforms like the Pakistan Mercantile Exchange.
Implications of FBR’s Performance
The 135% growth in CGT collection highlights robust market activity and the FBR’s success in fostering a transparent tax environment. By improving regulatory frameworks and enforcing compliance, the FBR has taken a significant step toward achieving its fiscal objectives.
This enhanced performance not only bolsters Pakistan’s financial stability but also underscores the FBR’s pivotal role in strengthening investor confidence and optimizing revenue generation.