Capital Gain Tax-CGT

System

NCCPL

Presentation

1
Back Ground of CGT
Regime

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 Back Ground of CGT Regime

 The SECP, in order to strengthen the Capital Market in

Pakistan, forwarded a proposal to the Federal Board of
Revenue (“FBR”) for Revamping of CGT Regime.

 This was Intended to Provide Ease of Calculation and

Documentation to Investors.

 Accordingly, NCCPL shall be Responsible to Compute,

Determine, Collect and Deposit CGT to FBR.

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 Back Ground of CGT Regime

 CGT Rules have been revised though the promulgation of Finance

(Amendment) Ordinance, 2012 effective from April 24, 2012.

 Section 100(B) has been inserted in the Income Tax Ordinance, 2001.

 For detailed treatment of CGT, Rules and Procedures have been

mentioned as follows:

 Rules for the Computation of CGT on Listed Securities have been

devised in Eight Schedule under section 100(B) of the Income
Tax Ordinance, 2001.

 Special Procedures for Computation of Capital Gains and

Collection of Tax under the Eighth Schedule and Other Related
Matters described in rules 13N to 13P of the Income Tax Rules,
2002.
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 Overview and
Procedures of the New
CGT Regime

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 Overview and Procedures of the New CGT Regime

 Following are the Persons/Investors to which new CGT Regime will

be applicable:

 Individual Investors;
 Brokers;
 Foreign Institutional Investor, being a person registered with
NCCPL as a foreign institutional investor; and
 Corporate Entities

 However, following Persons/Investors will NOT be covered under

new CGT Regime:
• Mutual fund;
• Banking Company;
• Non-Banking Finance Company;
• Insurance Company;
• Modaraba;
• A company, in respect of debt securities only; and
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• any person or class of persons as notified by the FBR.
 Overview and Procedures of CGT Regime

 Any Person/Investor may Opt-Out from the new CGT Regime.

 For Opting-Out, Person/Investor shall be required to file an Irrevocable

Option to NCCPL after obtaining prior approval of the Income Tax
Commissioner in the Prescribed Manner.

 CGT Regime will NOT be applied on such Person/Investor who Opted-Out.

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 Overview and Procedures of CGT Regime

 CGT Rates: 2017-2018

Securities Acquired Securities Acquired
before July 1, 2016 on or after July 1, 2016

Holding Period Filer Non-Filer Filer Non-Filer

Tax Rate

Where holding period of a security is less than twelve months 15% 18%

Where holding period of a security is twelve months or more but less twenty-four
12.50% 16% 15% 20%
months
Where holding period of a security is twenty-four months or more but the security
7.50% 11%
was acquired on or after 1st July, 2013

Where the security was acquired before 1st July, 2013 0% 0% 0% 0%

Future commodity contracts entered into by the members of Pakistan Mercantile

5%
Exchange

Furthermore, tax rate of cash settled derivates traded on PSX for the tax years 2018 to 2020
shall be 5%.

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Overview and Procedures of the New CGT Regime

Principles of Holding Period of Inventory Before the Promulgation

of New CGT Regime

S.NO. Holding Period Inventory Age Price

1. Securities Balance As- More than One Year Closing Price of
Of 23rd April 2011 23rd April 2011

2. Securities have been Determined as per  Market-Based

Acquired or Disposed the Actual Transactions-
off Between 24th April Acquisition and Transaction
2011 to 23rd April 2012. Disposal Price

 Non-Market-
Based
Transactions-
Deal Price or
Closing Price, as
the case may be.

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Overview and Procedures of the New CGT Regime

Principles for Physical Securities Deposited into CDS

S.NO. Deposit of Physical Inventory Age Price

Securities

1. Physical Securities The Date of Closing Price of

have been deposited in Acquisition shall be 23rd April 2011
CDS Between 24th Deemed as 23rd
April 2011 to 23rd April April 2011
2012

2. Physical Securities Actual Date of Prevailing

have been deposited in Acquisition as Closing Price of
CDS on or after 24th Communicated by the Deposited
April 2012 CDS. But it should Date.
not be Earlier than
23rd April 2011.

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Overview and Procedures of the New CGT Regime

Types of Transactions Covered under New CGT Regime:

 Market Based Transactions

 Sale and Purchase Transactions including Day-Trading

Executed or to be Executed on the Trading Platform of the
Stock Exchange.

 Non-Market Transactions

 Movement of Securities Through Free-Delivery (FD)

Mechanism of CDS.

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 Overview and Procedures of the New CGT Regime

General Principles for the Determination and

Computation of CGT
 CGT will be Determined and Computed on the Transactions and their
Values as Reported to or Provided to or Extracted from the Systems of
Stock Exchange, Central Depository Company of Pakistan Limited,
NCCPL and clearing members in case of Foreign Institutional Investors.

 First In First Out (FIFO) Inventory Accounting Method will be used.

 In Determination and Computation of CGT, First Priority shall be given

to the Market Based Transactions.

 Capital Loss in any Financial Year Shall be Set Off against Capital Gain
of that Financial Year.

 Capital Loss in any Financial Year Shall NOT be Carried forward to a

Subsequent Financial Year.

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 Overview and Procedures of the New CGT Regime

General Principles for the Determination and

Computation of CGT
 Fixed Cost of 0.50% on non-proprietary trades and 0.25% on
proprietary trades on Disposal or Acquisition of Securities, as the
case may be, in lieu of all Expenses will be Deducted or Added
while Determination and Computation of CGT.

 However, such Fixed Cost shall only be allowed in respect of

Market Based Transactions.

 Financing Cost Incurred through NCCPL’s Leveraged Market

Products shall be Taken into Account while Computing Capital
Gains.

 CGT shall be Collected on Monthly Basis for Transactions Settled in

a Month, after Adjustment of Losses or Refund of amount collected
of the Previous Month or Months of the Same Financial Year.
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 Overview and Procedures of the New CGT Regime

General Principles for the Determination and

Computation of CGT

 CGT shall be Collected From or Through the Respective Clearing

Members on Net Capital Gains of Persons/Investors.

 Any Person/Investor, if Not Satisfied with the Computation of

Capital Gain or Tax thereon or both made by NCCPL, such
Person/Investor may Re-Compute the Capital Gain and Lodge Claim
of Refund, if any, with the Commissioner of FBR.

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 Overview and Procedures of the New CGT Regime

General Principles for the Determination and

Computation of CGT

 The Amount Collected by NCCPL, in respect of Capital Gains, on

behalf of the FBR, Shall be Deposited in a Separate Bank Account
with National Bank of Pakistan and such Amount Shall be Paid to
the FBR Alongwith Interest Accrued Thereon on Yearly Basis by
July 31.

 In Case of Non-Recovery of CGT from any Person/Investor through

its Clearing Member, for any reason whatsoever, NCCPL Shall Refer
a Particular Case for Recovery of CGT to the FBR.

 Defaulted Person/Investor may also be Restricted from Taking New

Positions in all Markets till the Recovery of Amount of CGT.

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 Overview and Procedures of the New CGT Regime

General Principles for the Determination and

Computation of CGT

 The Short or Non-Collection of CGT in any Month During the

Financial Year shall Continue to Appear in the CGT Liability of
Coming Month or Months of the Same Financial Year.

 Brokerage Account of the Persons/Investors shall NOT be Closed

Until and Unless such Persons/Investors Obtains a Clearance
Certificate from NCCPL.

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 Overview and Procedures of the New CGT Regime

General Principles for the Determination and

Computation of CGT
 Following Certificate / Statement Shall be Issued and
Provided by NCCPL:

 Annual Certificate Showing Computation of Capital Gains and Tax

thereon, if any, to each Eligible Person/Investor within Thirty Days
from the End of the Financial Year.
 Quarterly Statement of Amount Collected from Eligible
Persons/Investors shall be Furnished to the FBR within Thirty Days
from the End of Each Quarter.

 Every Person/Investor Shall also File the Annual Certificate,

as provided by NCCPL, Alongwith the Return of Income.

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 Explanation and
Treatment of Market
and Non-Market Based
Transactions

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment

Transactions Inventory
Purchase/Acquisition Sale/Disposal

Sale & Inventory Average Purchase/ Average Sale

Purchase of Taken Acquisition Price Price of the
Securities Out/In on Security Sold
Through FIFO CGT Shall be
Trading Basis on Computed as
Systems Settlement per Rates in
Date accordance
with the
Squaring up No Impact Average Purchase Average Sale
Holding Period
Transactions on Price Price of the
in Ready, Inventory Security Sold
Futures and
Derivatives
(Day-
(Trading)
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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment

Transactions Inventory Purchase/Acquisition Sale/Disposal

Sale & Inventory Deal Price or Deal Price or CGT Shall be

Purchase Taken Out/In Closing Price at Closing Price Computed as
through on FIFO Ready Market at Ready per Rates in
Negotiated Basis on whichever is Market accordance
Deal Market Settlement Higher whichever is with the
(NDM) Date Higher Holding Period

Transfer of Inventory Acquisition Price Not No CGT for

Securities Move-in the Recorded for Federal or
Owing to Buyers’ PC. Provincial
Privatization Account and Government
Move-out on Transfers.
from
Privatization
Commission’s
(PC)Account.
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 Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment

Transactions Inventory
Purchase/Acquisition Sale/Disposal

Transfer Inventory Purchase / Actual Selling

Owing to Taken Acquisition Price Price,
Acquisition In/Out on Negotiated or
FIFO Basis. Quoted , CGT Shall be
whichever is Computed as
higher per Rates in
accordance
Buy-back of Inventory Purchase/Acquisitio Price Paid by with the
Shares Taken n Price the Company Holding Period
In/Out on to Acquire
FIFO Basis the Shares .

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax

Transactions Inventory Treatment
Purchase/Acquisition Sale/Disposal

Portfolio No Impact on the Original Purchase N/A N/A

Transfer – Age of Inventory / Acquisition Price
where all Age
UINs are
Matching

Transfer / Shares are Original Purchase N/A N/A

Transmission transferred to the / Acquisition Price
upon Death Beneficiary as was in the
/executor with hands of
the same Date of Deceased Person
Acquisition as
was in the hands
of Deceased
Person
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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment

Transactions Inventory Purchase/Acquisition Sale/Disposal

Transfer for / Acquisition Closing Price of the N/A N/A

against of Inventory Date of Conversion
GDRs -
GDRs are
Converted
into Shares

Transfer for / Inventory Purchase / Closing Price CGT Shall be

against Taken Out Acquisition Price of the Date of Computed as
GDRs - on FIFO Transfer per Rates in
Deposits into Basis accordance
Depository with the
and Get Holding Period
GDRs

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment

Transactions Inventory Purchase/Acquisition Sale /
Disposal
Reversal of Inventory Closing Price of the N/A No CGT
Erroneous Taken In / Out Transaction Date
Transfers on FIFO Basis

Gift Shares are Cost as was in the N/A No CGT

Transactions Transferred to hands of
the Beneficiary Transferee
with the same
Date of
Acquisition as
was in the
hands of
Transferee

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax

Transactions Inventory Purchase/Acquisition Sale/Disposal Treatment
Pledge call Inventory Average Purchase/ Closing Price
shall be Acquisition Price of the Date of
Taken out the Pledge
from the Call
Defaulter’s
Account CGT will be
Default in • No Impact Average Purchase / Square-up Computed as
Delivery by on Delivery Acquisition Price Price per the
Seller and Defaulter. Holding
Subsequent Period.
Squaring-up • Inventory
by NCCPL Taken Out
on FIFO
Basis From
the Square-
up Seller
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 Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment

Transactions Inventory Purchase/Acquisition Sale/Disposal
Right Issue Upon Exercise Subscription Cost N/A N/A
of Right, of the Right Shares
Inventory
Recorded at
the Credit Date

Bonus Inventory Ex-Bonus Price N/A NA.

Shares Recorded at
the Bonus
Credit Date
Offer for Securities are Cost of Acquisition N/A N/A
Sale Credited on
Acquisition
Date

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Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax

Transactions Inventory Purchase/Acquisition Sale/Disposal Treatment
De-Merger Existing Company’s Same Cost of N/A N/A
Shareholding is
Acquisition of the
Reduced with the
Revised Existing Company
Shareholding.

New Shareholding in
the New Company
With the Same Date
of Acquisition of
Existing Company

Merger No change Price Adjusted in N/A N/A

In Ownership
Accordance with
Extinguished the Merger Ratio
Security
Replaced with
New Security
with Merger
Ratio
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 Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment

Transactions Inventory
Purchase/Acquisitio Sale/Disposal
n
Specie Shares will be Zero Price N/A N/A
Dividend Added in the
Share Holders’
Account at the
Date on which
Shares are
Credited.

Capital Inventory Cost of N/A N/A

Reduction / Replaced and Acquisition of
Splitting of Adjusted as per New Shares will
Shares / Ratio or Remain Same, as
Conversion Division. it was for Existing
Shares
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 Explanation and Treatment of Market and Non-Market Based Transactions

Type of Impact on Pricing Tax Treatment

Transactions Inventory Purchase/Acquisition
Sale/Disposal
Transfer Shares are Cost as was in N/A N/A
under Tax- Transferred to the Hands of
Neutral the Beneficiary Transferee
Court with the same
Orders Date of
Acquisition as
was in the
hands of
Transferee
Transfer Shares are Closing Price of Closing CGT will be
under Transferred to the Date of Price of the Computed as
Taxable the Beneficiary Transfer Date of per the
Court with the Date of Transfer Holding
Orders Transfer Period.

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 Explanation and Treatment of Market and Non-Market Based Transactions

Securities Lending and Borrowing (SLB)

Tax treatment

 The Net Difference in the Hands of the Borrower resulting in completing

the whole transaction. (Difference of the Price of the Sale and Re-
Purchase).

 Financial Charges incurred on Borrowing the Securities Shall be Taken

into Account while Computing CGT.

 Tax to be collected at applicable rates on Net Gain

 CGT will Not be Applied on the Income of the Lender.

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 Explanation and Treatment of Market and Non-Market Based Transactions

Global Custodian Related Market Based Transactions and Transactions

executed by Foreign Institutional Investors outside Pakistan

Tax treatment

 Foreign institutional investor (FII) not only deal in shares for their own
account but also on behalf of other investors through global custodians.

 CGT shall be charged to final settlement account of person settling the

underlying trade. The clearing member should be responsible to collect
and deposit with NCCPL, the CGT computed.

 In case of negotiated deal transaction executed by FII outside Pakistan,

clearing member receiving the instructions from FII shall be responsible
to report this transaction in negotiated deal market. Then CGT will be
computed as per rules of Negotiated Deal Market Transaction.

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CGT System Reports

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 CGT System Reports

Following CGT Reports have been made available in

CGT System:

 CGT Consolidated Summary

 CGT Consolidated Summary

 CGT Summary Non Inventory Based

 CGT Gain/(Loss)Detail
 CGT Gain/(Loss) Summary

 CGT Inventory

 Slab wise Inventory Balance Report;

 Date wise Inventory Detail Report; and
 Inventory Balance Detail Report
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 CGT System Reports

CGT Consolidated Summary Report (NET CGT OBLIGATION)

1. This Report Contains ALL INFORMATION OF ENITRE CGT:

 Current Month CGT Position

 Previous Month CGT Position
 As of Reporting Month CGT Position
 Previous Month Non-Payment and Allocation
 Final As of Reporting Month CGT Position

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 CGT System Reports

CGT Consolidated Summary Report Type

2. CGT Gain/Loss Non Inventory

This Report represents the Gain/Loss and CGT for Square-up

Transactions of Various Market:

 Market-wise Capital Gain/(Loss)

 Total Gain/(Loss)
 Total CGT

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 CGT System Reports

CGT Gain/(Loss)Detail Report

This Report represents the following out-going information

of Sales/Disposal with Number of Days:

 Symbol
 Taxable and Non-Taxable Quantity
 Capital Gain/(Loss)
 Number of Days
 CGT Slab
 CGT

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CGT System Reports

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 CGT System Reports

CGT Gain/(Loss) Summary (out-going)

This Report represents the following Detailed Out-going

information:

 Symbol
 Total Out-going Inventory (Taxable and Non-
Taxable Quantity)
 Capital Gain/(Loss)
 Number of Days
 CGT Slab Percentage
 CGT

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 CGT System Reports

CGT Inventory Report Report Type

1. Slab wise Inventory Balance Report

This Report represents the following Balance information of

Purchase/Acquisition:

 Symbol
 Applicable Slab Rate of Inventory
 Total Volume

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44
 CGT System Reports

CGT Inventory Report Report Type

2. Date wise Inventory Detail Report

This Report represents the following in-coming information of

Purchase/Acquisition :

 Symbol
 Market Based Inventory
 Non-Market Based Inventory
 Total Volume
 Adjustment of Expenses
 Net Purchase Value and Price

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 CGT System Reports

CGT Inventory Report Report Type

3. Inventory Balance Detail Report

This Report represents the following Date-wise Balance

information of Purchase/Acquisition :

 Symbol
 Available Quantity in Inventory
 Price
 Shares Value

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Thank you !

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