FBR exempts brokers from cliental defaults


After a gap of more than three decades, the government of Pakistan imposed Capital Gains Tax (CGT) on sales of shares, said analysts at Topline Securities. Later, in February last year, the Federal Board of Revenue issued SRO 112 explaining the computation of CGT under Section 37A of the Income Tax Ordinance, they added. However, there were many issues raised by investors and market participants that were creating problems in calculating the CGT. “One of the reasons for record low volumes was the imposition of gain tax and complexities in its computation,” viewed Topline Securities analyst Farhan Mahmood. He said the FBR considering those practical matters had issued draft amendments that had partially addressed the concerns being faced by market participants.
These draft amendments would be taken into consideration after 15 days. The analyst said in the earlier rules the broker was supposed to close the account of the client only after getting tax clearance certificate from tax authorities. And, he said, in case that client disappears without paying tax then the broker was liable. “However according to new draft amendments this will not be the responsibility of the broker as he has no information of how many different brokerage firms that client is dealing with,” Farhan said. Now FBR can take information from the clearing company, as per the amended rules. According to February 2011’s SRO, loss adjustment was not admissible in case where loss was realized on sale of share which was followed within one month by purchase of same share by same investor. However, now this definition of wash sales has been amended. According to amendments, wash sales occurred when capital loss on sale of specific share is followed within one month by purchase of same share between same parties. “Thus if counter parties are different then it will not be termed as wash sales and loss will be allowed for computation of CGT MTS charges to be deducted,” he said. Now the capital gains tax would be adjusted for borrowing costs, he said adding that if someone realized gain of Rs100 a shares and he incurred Rs30 to finance those shares then tax would be imposed on Rs70. “All SECP approved leverage products like MTS, etc will be considered for this,” Farhan said.