No advance tax on sale and purchase of shares will be imposed from February 01, 2019 by the government of Pakistan.
In a move aimed at providing relief to investors and promoting a more conducive environment for the capital market, the Pakistani government has abolished the provision for the collection of advance tax at 0.02 percent on the sale and purchase of shares in the stock exchange. Effective from February 1, 2019, the decision was formalized through the Finance Supplementary (Second Amendment) Bill of 2019, presented on January 23, 2019.
The amendment focuses on Section 233A of the Income Tax Ordinance of 2001, which previously mandated stock exchanges to collect advance tax from their members on share transactions. The now-repealed section read as follows:
Section 233A: Collection of tax by a stock exchange registered in Pakistan
Sub-Section (1): A stock exchange registered in Pakistan shall collect advance tax—
(a) at the rate of 0.02 percent from its members on the purchase of shares in lieu of tax on the commission earned by such members; and
(b) at the rate of 0.02 percent from its members on the sale of shares in lieu of tax on the commission earned by such members.
The tax collected was adjustable against the members’ overall tax liabilities.
This provision had been a subject of debate and concern among investors and market participants. Critics argued that the imposition of advance tax on share transactions added an unnecessary financial burden, potentially discouraging trading activities and investment in the stock market.
The Finance Supplementary (Second Amendment) Bill of 2019 addresses these concerns by eliminating the advance tax requirement, signaling a positive step towards fostering a more investor-friendly climate. The decision is expected to enhance liquidity in the stock market and encourage greater participation from individual and institutional investors alike.
The abolition of advance tax on the sale and purchase of shares aligns with the government’s broader efforts to stimulate economic activity and attract investments. By easing the tax burden on investors in the capital market, policymakers aim to create a more attractive and competitive environment for both domestic and international investors.
While the move is expected to be welcomed by the business and investor community, the government will be closely monitoring the impact of this decision on revenue streams and market dynamics. Striking a balance between incentivizing investment and maintaining fiscal responsibility remains a key challenge, and the Finance Supplementary (Second Amendment) Bill reflects an ongoing effort to fine-tune the regulatory framework to support economic growth. As the capital market adapts to this change, market participants will be observing its effects on trading volumes, investor sentiment, and the overall vibrancy of the stock exchange.
