Federal government must immediately implement the decision announced by finance minister Dr Hafeez Sheikh relating to the non-disclosure of source of income by June 2014 by stock market investors and traders who were paying capital gain tax. Finance minister made this announcement on Saturday when he visited Karachi Stock Exchange and held parleys with stock market stakeholders to discuss important issues. After the meeting finance minister told media that by June 2014, tax authorities would not have to run after stock market investors to find out their source of income. He also said government has accepted recommendations of SECP relating to capital gain tax.
However, the decision announced by Dr Hafeez Sheikh had yet not been enforced in letter and spirit by government, which caused confusion among stock market stakeholders, Saad Bin Naseer, CEO Pearl Capital Management, told Profit on Friday.
He said market had reacted very positively and strongly to the announcement made by the finance minister for two consecutive days; but delay in implementation of the announcement were creating doubts in the minds of the stakeholders.
Saad pointed out that stock market players did not demand abolition of capital gain tax, but suggested that they must not be harassed by the tax authorities. “Stock market brokers, investors and traders were willing and paying CGT and other taxes, but they want protection and a fair environment,” he said. After finance minister’s announcement, Karachi Stock Exchange 100-index gained more than 500 points in two consecutive trading sessions. But the bullish sentiment weakened and now the marketing is fluctuating both ways as investors await implementation of the decision announced by finance minister in Karachi, he said.
Saad said Capital Gains Tax (CGT) has badly undermined the trading sentiment and volume at the stock market since July 2010. Thousands of traders have disappeared from the stock market amid an all-time low volume, while brokerage houses have carried out right-sizing. What is worth noting is that government had enforced CGT from July 2010 mainly to please International Monetary Fund, but this taxation measure has not only eroded trading at stock market but also deprived government of billions of rupees worth of revenue as daily turnover of shares plummeted to 20 to 40 million shares against 400 to 450 million shares trading in good days at the market.
Seeing this dual loss to economy and capital market, finance minister ultimately made a commitment with stock market players that their source of income will not be demanded by tax authorities. Saad Naseer said expansion in tax-net is important to enhance tax revenue, bring into tax-net those who were rich and not paying tax, but tax managers should create proper awareness to pre-empt speculations and damage to investment climate and encourage investment at stock market.
He pointed out that another major issue for a majority of the brokers is that out of 40 to 50 million shares daily turnover, about 75 per cent of trading volume is in the hands of the top 10 brokers, while the remaining brokers are fighting to get a share from 25 per cent of the volume. At present 200 brokerage houses are members of 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 of daily trading is essential, he said.
