In a bid to overhaul the tax regime and foster a more balanced investment environment, the Pakistan Stock Exchange (PSX) has put forth a groundbreaking proposal to eliminate the flat rate of Capital Gains Tax (CGT) set at 12.5 percent in the upcoming budget for the fiscal year 2024-25.
The current CGT structure imposes a uniform 12.5 percent tax rate on the disposal of securities acquired between July 1, 2013, and June 30, 2023. However, PSX advocates for aligning the tax rates on securities with those applied to real estate transactions, thereby subjecting gains on securities acquired within the mentioned timeframe to the same rates applicable on securities acquired after June 30, 2022.
This move is underpinned by a strategic objective to incentivize documentation of real estate transactions, curbing rampant speculation, and mitigating the undue pressure on property prices fueled by the influx of unrecorded wealth into the market.
The proposal gains further momentum as PSX underscores the necessity of harmonizing CGT rates across different asset classes to eliminate tax-driven distortions and cultivate a level playing field conducive to the efficient allocation of resources towards productive investments.
A critical aspect of the proposal emphasizes the incongruity in tax treatment between securities and real estate under the current Income Tax Ordinance of 2001. Notably, while a taxpayer is liable to pay CGT at the fixed rate of 12.5 percent on the disposal of securities acquired as far back as July 2013, the tax liability on the sale of immovable property acquired during the same period remains at zero percent. This incongruity persists even if the securities are held for an extended period, contrasted with the tax exemption enjoyed by real estate investors.
The PSX contends that such disparate tax treatment creates a disincentive for investment in the stock market and exacerbates distortions in the allocation of capital, hindering economic efficiency and growth prospects.
In advocating for the removal of the flat CGT rate, PSX envisages a transformative impact on the investment landscape, fostering transparency, and bolstering investor confidence. By aligning tax rates with the principles of equity and fairness across asset classes, the proposed reform is poised to reinvigorate the capital market, channeling investments towards sectors vital for sustainable economic development.
Furthermore, the PSX’s recommendations resonate with the broader objectives of fiscal policy, aiming to enhance revenue generation while promoting a conducive environment for investment and entrepreneurship. By rationalizing CGT rates, policymakers can stimulate economic activity, spur job creation, and fortify the foundations for long-term prosperity.
As stakeholders await the unveiling of the budget for the fiscal year 2024-25, the PSX’s proposal stands as a beacon for transformative tax reform, signaling a paradigm shift towards a more equitable and dynamic investment landscape in Pakistan.
