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PSX calls for rationalisation of Capital Gains Tax structure

MSCI has downgraded Pakistan to a frontier market after four years. Source: PSX
KARACHI: Pakistan Stock Exchange (PSX) has urged the government to rationalise the Capital Gains Tax (CGT) structure in line with international best practices and reduce the rate which is currently one of the highest in the region.
The bourse released a statement stating Pakistan’s capital markets are fully documented and 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.
It stated that Rs.1.3bn was collected as CGT last year and the proposed changes will bring in new taxpayers and increase tax revenue. This will attract new domestic and international investors to Pakistan’s capital markets without any impact on revenue.
It said the measures will help create new taxpayers and increase low savings rate, one of the critical structural imbalances in the 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,” said the statement.
PSX said the rationalisation of CGT will benefit the economy and tax revenue as local and foreign investors will be attracted to the stock market and a larger number of people will be included in the documented economy and tax net.
It should also be noted that since the announcement of the budget, the stock market has fallen by 1390 points, which is a 4 percent decline and shows the negative sentiment towards the budgetary announcements.
Pakistan Stock Exchange has recommended that the rate of Capital Gains Tax be brought down to 10 percent for short term investments and be made nil for long term investments.
This will bring it in line with international and regional levels, as well as the changes proposed by the government for real estate. The PSX said the proposals and recommendations for CGT structure have the support of the Securities and Exchange Commission of Pakistan.
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