FBR must remove investors’ doubts about Capital Gain Tax

Federal Board of Revenue should create awareness among investors about the enforcement of the Capital Gains Tax (CGT) that has badly undermined the trading sentiment and volume at the stock market since July 2010. Different rumours and fears are prevailing in the market and among investors about the CGT as a result of which the trading volume at Karachi Stock Exchange had plummeted to the bottom-line in the absence of investors and day traders.
Pearl Capital Management Chief Executive Saad Bin Naseer said this in an interview to Pakistan Today.
Fears and speculations have been haunting the investors from the day the CGT had been imposed on trading of shares at the stock market, he said. The Federal Board of Revenue had neither created awareness about this tax nor tried to remove the apprehensions of investors. This development had badly eroded the trading volume at the stock market and the KSE that used to record 400 to 500 million shares trading a day in 2007-08, is now seeing a meager turnover of 40 to 50 million shares, Saad said.
Expansion in tax-net is essential to enhance tax revenue, bringing those who are rich and not paying taxes under the tax-net, but tax managers should create proper awareness to pre-empt speculations and damage to investment climate and encourage investment at stock market, he added.
“You wouldn’t believe that only about 40 percent of the brokers are still working in the market while the rest have abandoned the business and are waiting for good days to return at KSE,” Saad said.
Another major issue for a majority of the brokers, he said, is that out of 40 to 50 million shares daily turnover, about 75 percent of the trading volume is in the hands of top 10 brokers while remaining brokers are fighting to get share from 25 percent volume.
At present 200 brokerage houses are members of the Karachi Stock Exchange out of which less than 100 are active, he said, adding for the financial survival of each and every active broker, a minimum of 150 million shares daily trading is essential, he said.
Saad also disclosed that the price of value of the membership of the KSE had fallen to 55 million rupees as against 150 million rupees in 2007-08 when the market had hit the highest benchmark. Even some brokers, who are not active these days, want to get rid of their memberships and are looking for buyers to sell their cards, but no one is interested in buying membership in the prevailing circumstances.
He further pointed out that the 30 percent cash requirement condition for obtaining the margin financing facility should be relaxed and investors’ shares should be considered as guarantee in place of cash requirement.
Talking about revival of short-selling through recently introduced Borrowing, Lending Facility, he said without a substantial increase in the volume of trading, neither the margin financing nor the short-selling schemes would yield desired results.
Pearl Capital Management CEO said the brokers have requested KSE to introduce deliverable future products to attract investment and increase volume.
He said that Karachi Stock Exchange Chairman of the Board Muneer Kamal and Nadeem Naqvi, the recently appointed Managing Director of KSE are very experienced and competent people and they must take possible measures to ensure turnaround in the stock market, to attract investment and thousands of the jobbers and day traders who have abandoned trade because of very low volumes at KSE.
The revival and stability of the stock market would be a challenge for Muneer Kamal and Nadeem Naqvi, he added.