The Federal Board of Revenue (FBR) has proposed a procedure to provide mechanism for determining/rectifying date of acquisition of securities for calculation of Capital Gains Tax (CGT) on disposal of securities. The FBR has proposed amendments to the Income Tax Rules, 2002 through an SRO194(I)/2016 here Wednesday.
According to the drat rules, in case an error is pointed out or found in recording the date of acquisition of security, National Clearing Company of Pakistan Limited (NCCPL) may with the prior approval of the Commissioner Inland Revenue rectify such date based on written confirmation received from Central Depository Company (CDC) evidencing the accurate date of acquisition of security and accordingly re-compute the Capital Gains Tax liability in the financial year in which such security has been disposed.
Where securities of unlisted company are converted into electronic form, the cost of acquisition of such securities shall be the market price at which the security is listed on the, stock exchange and the date of acquisition shall be the date of acquisition as available with CDC, it said.
Sales transactions of securities of unlisted company after its conversion into listed company: An investor, holding, such securities, sells securities in a stack exchange. The transaction is settled by transferring the securities sold from his account maintained in Central Depository System to the· investor buying the securities with credit of sale proceeds to the account of investor disposing of the securities. As far as tax treatment is concerned, the disposal of security is to be taken as taxable event, at settlement date Capital gain will be computed by applying FIFO method, Capital Gain shall be chargeable to tax as per section 37A read with rates specified in Division VII of Part I of the First Schedule, the FBR added.
Following is the text of the SRO issued here on Wednesday: The draft rules will be taken into consideration by the Federal Board of Revenue after seven days of its publication in the official Gazette. Any objection or suggestion, which may be received from any person in respect of the said draft, before the expiry of the aforesaid period, shall be considered by the Federal Board of Revenue,
DRAFT AMENDMENTS
In the aforesaid Rules,-
(1) in rule 13N,-
(a) in sup-rule (3), for full stop at the end, a colon shall be substituted and thereafter the "following proviso shall be added, namely.-
"Provided that in case error ''is pointed out or found in recording the date of acquisition of security, NCCPL may with the. prior approval of the Commissioner Inland Revenue rectify such date based on written confirmation received from CDC evidencing the accurate date of acquisition of security and accordingly re-compute the capital gain tax liability in the financial year in which such security has been disposed "; and in sub-rule (23), in clause (9), the word "and" at the end shall be omitted and thereafter the following new clause shall be inserted, namely.
"(dd) where securities of unlisted company are converted into electronic form, the cost of acquisition of such securities shall be the market price at which the security is listed on the, stock exchange and the date of acquisition shall be .the date of acquisition as available with CDC; and"; and
(2) in rule 13P, after clause (za), the following new clause shall be added, namely:,-"(zb) Sales transactions of securities'' of unlisted company after its conversion into listed company.
Detail of the transaction An investor, holding, such securities, sells securities in a stack exchange. The transaction is settled by transferring the securities sold from his account maintained in Central Depository System to the· investor buying the securities with credit of sale proceeds to the account of investor disposing of the securities:
Tax treatment Disposal of security is to be taken as taxable event, at settlement date Capital gain will be computed by applying FIFO method, Capital Gain shall be chargeable to tax as per section 37A read with rates specified in Division VII of Part I of the First Schedule:
Example A, being a client of a broker, has 1,000 shares of company ABC in his Account. He acquired 1.000 shares on the 1st January, 2013, at Rs, 15 per share when the Company was private/public unlisted company and transfers the same electronic form with CDC on 1st February, 2013,
ABC Company listed on stock exchange on 1st July, 2015 at a listing price of Rs 20. He disposed off 500 shares on 1st January, 2016 at Rs.25 per share and 500 shares on 8th February, 2017 at Rs.30 per share.
Since NCCPL can obtain information only from CDC and stock exchanges in accordance with sub-rule 3 and 23 of rule 13N, NCCPL will compute holding period as available with CDC and at the acquisition price at which the security is listed on stock exchange. NCCPL call compute capital gain and. tax thereon, if any, based on original acquisition date of security in the case the actual date of acquisition is available with CDS, in the following manner.
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Purchases/Acquisitions Disposal
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Date No of shares Price Cost 1st Jan. 2016 8th Feb, 2017 Total
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1-Jan-13 1,000 20 20,000 500 500 500
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Selling price per share 25 30
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Sale proceed 12,500 15,000 27,500
Less: Cost 10,000 10,000 20,000
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Purchases/Acquisitions Disposal
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Date No of shares Price Cost 1st Jan. 2016 8th Feb, 2017 Total
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Difference 2,500 5,000 7,500
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Less: 0.50% of sale proceeds as expense 62.5 75 137.5
Capital gain 2,437.5 4,925 7,362.5
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Holding period 1,095 1,499
Tax rate applicable 7.5% 0%
Total to be collected 182.81 -
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