KARACHI – The institutional investors at Karachi Stock Exchange (KSE) were unable to pay the newly imposed Capital Gain Tax (CGT) on time due the absence of a regulatory and collection mechanism yet to be devised by the Federal Board of Revenue (FBR). Furthermore, the FBR last week had to extend dates for the quarterly payments of CGT to a period that, the investors believe, is “too short” and, therefore pressuring them.
Taxpayers from brokerage houses, banks, Development Financial Institutions (DFI), mutual finds and other corporate entities liable to pay the CGT are said to have been in a fix ever since the imposition of CGT by the government without doing, what the brokers called, necessary “homework”. Under Subsection (5B) of Section 147 of the Income Tax Ordinance 2001 the institutional investors were to clear their CGT payments on a fiscal quarterly basis but despite the elapse of two quarters, ending on September 30 and December 31, 2010, no payment could be made for want of the necessary regulatory and collection mechanism.
According to sources, it took the revenue-hungry federal government over six months to formulate and circulate the applicable regulations for the new levy, the imposition of which was made public in the federal budget speech on June 5, 2010.
Resultantly, the FBR, acting under Section 214A of the Income Tax Ordinance 2001, had to revise dates for the CGT payments. “The Federal Board of Revenue is pleased to extend the dates of quarterly payments of adjustable advance tax on capital gains,” says FBR’s SRO Number 35(1)/2011 made available to Pakistan today. The SRO was issued last week on January 11, 2011. According to the notification, the tax collector has set the 21st of January, April and June of 2011 as revised dates for the payments of CGT. The KSE management has also notified the concerned quarters through issuing a notice (KSE/N-209) on Monday.
The extension, however, is not palatable for the taxpayers as a member broker at KSE complained, “the time is too short. They should have done their homework earlier.” “So far no regulations pertaining to the CGT have been circulated,” the stock broker noted, adding that the FBR had earlier claimed that the same would be circulated on Tuesday. According to a taxpayer at KSE, the FBR had even not determined a separate “head of account” at the State Bank in which the profit-making traders could deposit their taxes on quarterly basis. According to the investor, the FBR had asked the taxpayers to calculate scrip-wise their capital gains and then file taxes on the basis of date and quantity of the traded shares. After a months-long delay, the sources said, the FBR was now finalising all the modalities through holding separate meetings with the stakeholders. “Though the discussions on regulations and all modalities have been finalised, now what comes in writing is yet to be seen,” said a trader at the exchange. It is noted that while the cash-strapped country is desperately seeking additional sources of revenue; such examples of mismanagement will undermine government efforts to meet economic challenges.
