CGT playing havoc with investment in stock market | Pakistan Today

CGT playing havoc with investment in stock market

Capital Gain Tax (CGT) has played havoc with the stock exchanges of the country and requires immediate withdrawal. It is very complex and is blocking market liquidity and causing low market turnovers. The government should revisit the process of collecting CGT for overcoming the liquidity crunch.
The investors, analysts and traders of the stock exchange believe that the CGT is imposed where economies are flourishing but unfortunately our economy is in poor shape and the stock exchange cannot sustain the imposed tax. The government imposed CGT in the financial year of 2010-11 and it is deducted with a ratio of 12.5 per cent on the profit of traders. Besides deduction from profit, it has other implications as well and a trader has to file a return and declare his source of income. It resulted in a shift of capital from stock market to other avenues such as commodities and currency markets, where no tax has been imposed as of yet.
Traders have left the market for good and volume of the market has squeezed by 90 per cent. On average, the daily volume of Karachi Stock Exchange (KSE) in 2008-09 and before was around 200 million but after imposition of the CGT, it sharply declined and now KSE does not even cross a volume of 20 million on a daily basis. The big guns of KSE have been assured from higher circles of the government that the tax would be revisited or could be withdrawn, but nothing has been done so far.
Analysts believe that fresh investors are staying at bay due to the tax and preferring other markets. Capital Vision Securities analyst Irfan Baig Mirza said that policymakers found it easy to impose a tax on stock exchanges, instead of targetting other markets. “The commodity and money markets remain unchecked and there is no taxation on these markets, thus investors find them lucrative for earning profits as compare to stock exchanges, where only the CGT is enough to track down investors,” Mirza said. He further added that after imposition of the CGT, volumes of KSE came down to 20 million from a value of 200 million. He said when people are informed about filing a tax return on profits earned from stock exchanges; they abstain from trading in stocks, causing a sharp decline in volumes. He said a number of potential investors came to the stock exchange but after being told about the CGT, they avoid investing in stocks. He said the brokerage houses have asked the government to withdraw CGT and it can increase the ratio of Capital Value Tax (CVT) but nothing in this regard has been done so far. CVT is deducted with a ratio of 0.01 per cent and it could further increase if the CGT is withdrawn, he suggested.
Maan Securities Director Irfan Saeed Chaudhry said that if the government does not intend to withdraw it, then it should change the procedure of collecting the CGT. “The government can deduct it at source, as in this way the investors do not face the hassle of depositing returns,” he said adding no investor likes to file returns. “If a number of taxes can be deducted at source then why not CGT?” he opined. Chaudhry was of the view that if the government redefines the procedure of collecting CGT, then it can also restore the confidence of investors and the stock exchanges of the country can flourish again. “The law and order situation of the country is already poor and such taxes further aggravate the problems of the stock market. We urge the government to rethink the issue or else the situation in the stock exchange would worsen in the coming days,” he concluded.

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One Comment;

  1. Ali said:

    It is quite to difficult to understand as what government intends to achieve out of imposition of CGT under the prevailing economic and market condition except that fear of CGT may keep the small investors away from the market which would then result into market imperfection. CGT should be immediately withdrawn or re-modeled liked CVT.

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