CGT exemption on private company shares suggested

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KARACHI: The Federal Board of Revenue (FBR) has been asked to grant a capital gains tax (CGT) exemption on the disposal of private company stock after 10 years.

The Karachi Tax Bar Association (KTBA) in its proposals for the 2022/2023 budget has suggested an amendment to Section 37 of the Income Tax Ordinance 2001 regarding gain on sale of company shares private.

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The tax bar said that according to section 37 of the ordinance, the gain on the sale of shares of shares of private companies is taxed at the rate of corporation tax. This gain is reduced by 25 percent if the holding period exceeds one year.

In the event of a capital gain on the sale of real estate, the capital gain is exempt if the holding period is greater than 4 years. In the event of a capital gain on securities U/s. 37A, the gain is exempt on securities acquired before July 1, 2012.

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“Therefore, investing in shares of private companies is at a disadvantage,” the KTBA said.

It is proposed that the gain on the sale of private company shares will also be exempted if the holding period is 10 years or more. To encourage and promote the corporatization of businesses.

The Tax Bar has also recommended amending section 2(19)(d) of the Income Tax Order 2001 relating to the redemption of shares.

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In accordance with the definition of dividend, the distribution made by a company to its shareholders upon reduction of capital is considered a dividend. This situation is generally referred to as Redemption of Shares.

However, under Rule 13P of the Income Tax Rules 2002, the share redemption transaction is treated as a capital gain. Thus, there is a contradiction between the provisions of the Ordinance and the Regulations.

Contradictory legislative provisions which must be corrected, declared the tax bar, adding that in principle, the repurchase of shares cannot be assimilated to an alienation of shares and must not be covered U/s. 37A of the Ordinance.

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The necessary clarifications should be issued and Rule 13P amended to align with the law to align the various provisions of the law.

The tax also proposed up to 20 percent real estate capital gains tax with the removal of all exemptions and concessions.

The KTBA, in its proposals for the 2022/2023 budget, suggested that the Federal Board of Revenue (FBR) impose an aggressive tax rate on the real estate sector. In this regard, the Tax Bar has recommended an amendment to section 37(1A) of the Income Tax Order 2001. He said the amendment was necessary because the existing law lacks a composite framework for taxation of the real estate sector.

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The KTBA said the taxation of real estate transactions in Pakistan was either nominal or deliberately avoided. Therefore, trade in the real estate sector is the single most important factor in creating a huge informal economy, namely a paradise for evading taxes in Pakistan. “Other harmful consequences of this scenario are money laundering and terrorist financing. International donors/regulators have time and time again suggested measures to improve the situation.


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