The newly clarified Section 112 specifically addresses tax liability arising from the disposal or certain security transactions.
In a bid to provide clarity on the taxation of certain security transactions, Section 112 of the Income Tax Ordinance, 2001 has been invoked. The Federal Board of Revenue (FBR) has issued an updated version of the Income Tax Ordinance, 2001, incorporating amendments made through the Finance Act, 2021.
The text of Section 112 of the Income Tax Ordinance, 2001 is as follows:
“112. Liability in respect of certain security transactions.— (1) Where the owner of any security disposes of the security and thereafter re-acquires the security and the result of the transaction is that any income payable in respect of the security is receivable by any person other than the owner, the income shall be treated, for all purposes of the Ordinance, as the income of the owner and not of the other person.
(2) In this section, “security” includes bonds, certificates, debentures, stocks and shares.”
This section aims to address scenarios where the owner of a security disposes of it and subsequently reacquires the same security. The key consideration is the income generated from the security and to whom it is payable. If, as a result of this transaction, the income becomes receivable by a person other than the owner, Section 112 stipulates that, for all purposes of the Ordinance, the income is to be treated as the income of the owner and not the other person.
The inclusion of a comprehensive definition for “security” in Section 112 is notable. The term is broad and encompasses bonds, certificates, debentures, stocks, and shares, ensuring that various financial instruments fall under the purview of this provision.
Tax experts suggest that this clarification is essential in preventing potential tax loopholes and ensuring that the tax liability is appropriately assigned to the rightful owner of the income generated from the securities. Without such provisions, there might be room for manipulation of transactions to shift tax obligations, which could compromise the integrity of the tax system.
The amendment aligns with the broader objectives of maintaining a fair and transparent taxation system, reducing ambiguity, and curbing potential tax evasion practices. By clearly defining the tax liability in specific situations involving the disposal and reacquisition of securities, Section 112 contributes to the overall efficiency and effectiveness of the income tax framework.
Taxpayers and financial professionals are urged to familiarize themselves with the revised Section 112 to ensure compliance with the updated regulations. It is anticipated that this clarification will lead to more accurate reporting and taxation of income from securities, thereby contributing to the government’s revenue collection efforts.
Section 112 of the Income Tax Ordinance, 2001, serves as a crucial piece of legislation in addressing tax implications arising from the disposal and reacquisition of securities. The FBR’s efforts in providing clear guidelines through this section contribute to the transparency and fairness of the taxation system, aligning with broader initiatives to strengthen the financial regulatory framework in Pakistan.
