Inside Financial Markets

Stock brokers strongly oppose proposed rise in CGT rates

PAKISTAN-ECONOMY-STOCKStock brokers strongly oppose proposed rise in CGT rates

KARACHI: The brokerage industry seems to be unanimous in its opposition to the proposed hike in rates of capital gains tax (CGT) on the sale of securities in the upcoming federal budget.

The government plans to significantly increase the CGT rates on the sale of shares within two years of their purchase. In addition to this, it is expected to impose the CGT on the trade of shares whose holding period is more than two years.

“The mind set of government officials is that everyone in the stock market is minting money – as if everyone is raking in cash,” Karachi Stock Exchange (KSE) Brokers’ Association Chairman Yaseen Lakhani said while speaking to The Express Tribune on Thursday.

Saying that the proposed revision in the CGT rates is contrary to the budget proposals that the stock exchange submitted to the government in February, Lakhani observed that Finance Minister Ishaq Dar appears to be least interested in getting meaningful feedback from the industry.

“Finance ministers would pay a pre-budget visit to the KSE in the past, but Dar has discontinued that practice. He came to the exchange only to claim credit for a sharp increase in the benchmark index,” he added.

The proposal

The government is expected to increase the CGT rates by up to one-fourth of their present levels. The current CGT rate is 12.5% for selling shares with a holding period of less than a year. It is expected to be increased to 15% in 2015-16.

The current CGT rate is 10% for securities whose holding period is between 12 and 24 months, but it is likely to be pushed to 12.5% in the upcoming federal budget.

There is currently no CGT on selling shares after holding them for two years. But the federal government is likely to impose a 7.5% CGT on such securities.

“Know-it-all government functionaries should realise that the securities market is 100% documented and already contributes a lot to the national kitty,” Lakhani said.

The Express Tribune reported a day earlier that CGT collection from the stock market in the first 10 months of the current fiscal year stood at Rs4.5 billion.

According to AKD Securities CEO Farid Alam, the proposed hike in the CGT rates will hurt investor confidence in the capital markets. “Such measures are destroying the share market, which is the best avenue for raising new capital,” he said.

Alam added high rates of CGT will hinder the process of price discovery on the stock exchange. He proposed that the government should do away with all the slabs for CGT and instead impose a uniform 7.5% tax on the profits earned through the sale of shares regardless of their holding period.

“Imposing a uniform CGT will not only increase the volumes, but will also result in a healthy rise in the overall tax collection from the stock market,” Alam said.

In its budget proposals, the KSE had called for eliminating the CGT on the sale of securities whose holding period is more than one year and less than two years.

The proposals demanded no change in the CGT of 12.5% on the sale of securities with a holding period of less than six months. However, they called for bringing down the CGT rate from the current 12.5% to 10% on the sale of securities whose holding period is more than six months and less than one year.

Ahsan Baig

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)