PSX seeks to rationalize CGT structure to cause additional tax revenue

KARACHI: Pakistan Stock Exchange (PSX) urges the Government to rationalize the Capital Gains Tax (CGT) structure in line with international best practice and reduce the rate, which is currently one of the highest in the region. Only Rs.1.3bn was collected as CGT last year and the proposed changes will bring in new tax payers and increase tax revenue. This will be a significant and welcome headline change which will attract new domestic and international investors to Pakistan’s capital markets, without any negative revenue impact, says a Press release.
Pakistan’s capital markets are fully documented. Hence it is important to have a tax structure that attracts funds from the informal and undocumented part of the economy towards the documented capital markets. This will help create new tax payers and increase Pakistan’s low savings rate, one of the critical structural imbalances in Pakistan’s economy. A review of CGT on listed securities has now become even more urgent and important in view of the changes made in the CGT structure on real estate. This creates a tax driven distortion between the capital markets and real estate, and discriminates against the capital markets, which are fully documented. This is against all logic, fairness and the stated policy of GoP and FBR, which is to encourage documentation of the economy. This will also impact other associated industries, including mutual funds, pensions and insurance.