ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has recommended exemption of additional capital gain tax (CGT) on disposal of shares in case of foreign investors, who are not on the Active Taxpayers List (ATL).
The SECP submitted tax proposals for budget 2021/2022 to the Federal Board of Revenue (FBR).
The SECP submitted following proposal in case of CGT:
Exempt foreign investors from applicability of 100 percent additional tax in case their name is not appearing in Active Taxpayers List (ATL) in the Tenth Schedule
Presently, 44 percent of total foreigners investing through PSX are currently not appearing in ATL list as a result of which they are subject to Capital Gain Tax (CGT) @ 30 percent.
For such investors who do not have any other source of income in Pakistan except capital gains, should not be subject to additional 100 percent tax for not being in the ATL
Align it simplified tax regime for Roshan Digital Account (RDA) holders, wherein tax rate applicable for persons appearing on ATL will be charged to RDA holders
Foreigners may be subject to taxation in their home country being resident tax payer therefore, a balanced taxation of their income in Pakistan is essential
Benefit to Economy
The rationale taxation of foreigner’s income from investment will result in inflow of foreign exchange, boosting foreign exchange reserves of the country.
Broaden investor base of capital markets and more liquidity to capital markets by luring foreign investors.
Impact on Tax Revenue
Foreigners represents approximately 5 percent of overall capital market investors trading and removing additional tax will not materially impact tax revenue.
Fresh investments will result in further tax revenue, in case tax incentives are provided.
Comparable regional practices relating to taxability
A brief overview of CGT practices adopted in other regions is provided below:
|Country||Rate of CGT|
|India||10 percent – Long term 15 percent – Short term|
|Kyrgyzstan||CGT are subject to ordinary income tax rate at 10 percent|
|Mauritius||Corporate: 15 percent if holding period is less than 6 months Individual: 10 percent if income is less than MUR 650,000 & 15 percent if income is more than MUR 650,000|