The Pakistan Business Council (PBC) has submitted proposals to the Federal Board of Revenue (FBR) for the upcoming budget of 2024-2023. Among the proposals is a recommendation to exempt capital gains tax on shares with a holding period of 10 years.
Currently, the gain on disposal of land after a holding period of 6 years is exempt from income tax. However, the gain on disposal of shares of a public/private/unlisted company is taxable, regardless of the holding period. The PBC argues that the value of the company increases through profits on which tax has already been paid.
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To encourage investment in revenue-generating assets such as industries, employment, and exports, the PBC proposes that sponsors/owners of public/private/unlisted companies be allowed tax exemption on capital gains from the disposal of shares, provided that the holding period is more than 10 years. This holding period is longer than the 6 years required for the exemption of gains on land disposal.
If the proposal for tax exemption is not accepted, the PBC recommends that the rate of tax on disposal of shares of a private company should be taxed at 15%, the same rate as dividend taxation. This is because the breakup value of the company is increased from retained profits, which could have been declared as dividends and taxed accordingly.
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Overall, the PBC’s proposals aim to divert investment from non-revenue generating assets such as land to revenue-generating assets such as industries, employment, and exports. The proposed tax incentives are intended to stimulate economic growth and development in Pakistan.
