Proposed CGT regime: FBR critical of section 111 exemption, NCCPL role

The Federal Board of Revenue will convey its strong reservations over the proposed regime of capital gains tax (CGT) to the Ministry of Finance on two key issues - exemption from section 111 (unexplained income or assets) of the Income Tax Ordinance 2001 to investment made in stock market upto June 30, 2014 and declaring National Clearing Company of Pakistan (NCCPL) as a withholding agent to deduct and deposit the CGT from investors.
Sources told Business Recorder here on Thursday that the FBR will submit a detailed note to the Ministry of Finance on its viewpoint on the most important issues of the proposed regime of the CGT. The legal, technical and financial implications of the proposed CGT regime would be clarified to the Ministry of Finance. In this connection, the FBR is convening regular meetings with the high-ups of the Finance Ministry.
Firstly, it has been reported that the exemption from section 111 of the Income Tax Ordinance 2001 would be available up to June 30, 2014. After this period, source of investment would be probed by the tax department under the new CGT scheme. On this proposal, the FBR has opposed the idea of granting exemption from section 111 of the Income Tax Ordinance 2001 up to June 30, 2014. The FBR is not in favour of giving any exemption from disclosing source of investment made in future by the investors of the stock exchanges. Even exemption from disclosing source of investment made in the past should only be available to those having genuine investments in stock market. The FBR has opposed any blanket exemption to the investors of stock market from the provisions of section 111 of the Income Tax Ordinance 2001.
Secondly, the FBR will have to first study the systems of the (NCCPL) before declaring it as withholding agent. In this connection, a senior official of Inland Revenue Service will visit Karachi on Monday (February 13) to study the system of the NCCPL. So far, the FBR opposed the proposal of declaring (NCCPL) as a withholding agent to deduct and deposit the CGT from investors of stock exchanges. The FBR is not ready to give any kind of assessment powers to the NCCPL. If the government wanted to declare the NCCPL as withholding agent, the FBR is also not in favour of giving any assessment powers to the NCCPL. The right of assessment should remain with the Inland Revenue Service officers under the Income Tax Ordinance 2001 and such assessment powers cannot be given to any withholding agent of the CGT.
However, the FBR has to first analyse the systems of the NCCPL before giving its final proposal on declaring it as withholding agent. Under the proposed CGT regime, it has been proposed that NCCPL shall act as a withholding agent to deduct and deposit the CGT from investors'' transactions. The NCCPL shall also provide investor-wise monthly report of CGT deducted and deposited for each investor to FBR and issue a certificate to the investor of the amount deducted. The investor will file tax return, including the CGT deposited, based on the certificate provided by NCCPL.