ISLAMABAD: In line with the recommendation of the Securities and Exchange Commission of Pakistan (SECP), Finance Act 2020 has defined "security" under which "shares of a public company" shall be considered as security if such company is a public company at the time of disposal of such shares.
Finance Bill 2020 has not mentioned the definition of security as recommended by the SECP.
Now, the Finance Act 2020 has incorporated the definition of "security" through an amendment to the Income Tax Ordinance 2001.
According to the Finance Act 2020, in section 37A, after sub-section (3A), the following new sub-section shall be inserted, namely:-63. "(3B) For the purpose of this section, "shares of a public company" shall be considered as security if such company is a public company at the time of disposal of such shares."
Tax experts said that the Finance Act 2020 has inserted a new subsection (3B) under Section 37A. Consequently, an explanation has been added with respect to securities. The subsection provides for shares of a public company to be treated as 'security', if at the time of disposal of such shares the company is public. This means that in case of shares held by shareholders of a private company, which has been converted into public company before disposal of such shares, such disposal shall be taxed under Section 37A, tax experts added.
The SECP had proposed the FBR to address an anomaly created in definition of security u/s 37A for computation of capital gains tax on listed securities.
Copyright Business Recorder, 2020