Tax clearance certificate condition needs to be abolished: ISE members tell Islamabad LTU

Leading brokers and members of Islamabad Stock Exchange on Tuesday conveyed to the Large Taxpayer Unit (LTU) Islamabad that the condition of the Income Tax Rules for the investors to obtain tax clearance certificate is very harsh/impracticable, which needs to be abolished.
Sources told Business Recorder on Tuesday that the ISE management and members also requested Syed Ijaz Hussain Shah, Chief Commissioner LTU Islamabad to extend the date for filing of quarterly statements of first and second quarter of 2010-2011. The DG LTU Islamabad visited the ISE here on Tuesday to obtain the input of the brokers and members on CGT rules and regulations to convey the same at the Chief Commissioner conference of the Federal Board of Revenue (FBR) to be held on Wednesday. It is expected that the Chief Commissioner LTU Islamabad would take up the reservations of the ISE Members before the tax managers at the national conference.
During interactive session between the DG LTU Islamabad and members of the ISE, broker's community strongly contested the rule (13J Liability of Broker) of the Income Tax Rules. ISE Members termed the mandatory condition of the tax NOC for investors before closure of their accounts as unjustified. They informed the DG LTU Islamabad that every broker or stock exchange's member, before closing the brokerage account of an investor, shall require an investor to obtain a tax clearance certificate from the concerned tax authority to the effect that the investor has no tax liability against him.
Under the CGT Rules, any broker or stock exchange's member who closes an investor's brokerage account without obtaining a tax clearance certificate and the investor disappears from the market without satisfying the tax authorities that he has no tax liabilities outstanding against him, such broker shall be liable to discharge such investor's outstanding tax liabilities to the satisfaction of tax authorities. ISE Members opined that the brokers cannot take reasonability of the tax liability of the investors. The payment of tax by the investors is directly between the investors and the tax department. If the investor disappears from the market without making tax payment, how the tax department can hold the concerned broker responsible for this action. The clients should themselves be held responsible for filing of their statements and clearance of their tax liability. It is against the natural justice that the brokers be held responsible for tax liabilities of their clients. Therefore, the FBR should take away the condition of the NOC from the tax department.
Sources said that the members also requested the Chief Commissioner LTU Islamabad to give 30 days relaxation in filing of quarterly statements for first and second quarters of 2010-11. Brokers informed the tax authorities that investors' base has been widened around the world to increase collection from stock exchanges. In case of Bangladesh, an amendment was made in the relevant rules last year that the source of investment in the stock exchange would not be asked from the investors. This not only increased investment in the Bangladeshi stock market manifold, but also attracted overseas Bangladeshi investors to make investment in their market.
Meanwhile, an announcement of the ISE here on Tuesday said that the over-regulations in the securities business have hampered its development. The investors' base is squeezing by each passing day. The government should rationalise the tax regime for the stock market to increase its revenue from the securities business. The securities business is 100% documented, business contributing billion of rupees to national exchequer. The misconception that brokers evade taxes is totally incorrect. This was stated by Imtiaz Haider, Managing Director, ISE in his inaugural address at a session with the tax authorities. The session was participated by a large number of brokers of the exchange.
Syed Ijaz Hussain Shah, Chief Commissioner (LTU) heard the views of the members and the ISE Management. The Members had grave concern over the procedure of adjustment of loss and requirement of producing NOC from tax authorities by the investors before trading account with the brokers. The members were also against the imposition of capital gain tax and were of the view that the government could not meet its target of revenue through CGT. Instead, the Members viewed that CVT should be restored withdrawing CGT for effective revenue generation and collection.
The issue of different regulatory compliance was also discussed with the Commissioner. The members were unanimous that the FBR should have been interacted with the NCCP for certain information and necessary reporting requirements. Since all trade database was available with the NCCPL, therefore the FBR should approach the NCCPL for the purpose, the members viewed.
Syed Ijaz Hussain Shah while appreciating the proposals from the members and the Management assured to take up the matter with the authorities for necessary consideration. Imtiaz Haider assured full co-operation to FBR for having further input on the matter. At the end, the Chief Commissioner was presented shield of ISE, ISE added.