The Federal Bored of Revenue (FBR) has explained in detail the amendments relating to Capital Gains on Securities & Shares under section 37 and 37A of the Income Tax Ordinance 2001.
According to an income tax circular issued by FBR on Thursday, through Finance (Supplementary) Act 2023 new sub-sections (6) to (10) have been inserted in section 37 providing for deduction of tax on sale of shares transactions other than covered under section 37A.
New provisions inserted require the acquirer of the capital asset [being shares of the company, other than shares of companies listed on registered stock exchange traded on said stock exchange and settled by the NCCPL], to deduct advance adjustable tax at the rate of 10 percent from gross amount of the sale consideration at fair market value of shares. The fair market value of shares shall be determined without deduction of liabilities, FBR explained.
The person acquiring the shares may seek certificate of exemption or reduced rate certificate from the Commissioner holding the jurisdiction where the person considers the transaction of sale of shares is either exempt or subject to reduced rate of tax under any of the provisions of the Ordinance. A person disposing of the shares is required within 30 days to furnish to the Commissioner holding jurisdiction over the case, information or documents in a statement as may be prescribed.
However, Commissioner can call for the said information or documents within less than 30 days by a notice in writing if necessitated. Moreover, proviso has been inserted in section 37A ousting shares of listed companies not traded on registered stock exchange and not settled through NCCPL from ambit of section 37A. In such cases provisions of section 37 shall apply with respect to collection and payment of taxes. This is done to capture off market transactions of shares of listed companies which are not traded through registered stock and not settled by NCCPL. In this regard relevant amendment in Income Tax Rules, 2002 has been made through SRO 776(l))1/2023.
The Finance Act, 2023 made further two amendments on account of capital gains on securities covered under section 37A of the Ordinance namely: –
- Through the Finance (Supplementary) Act, 2023, capital gain arising on disposal of shares of a listed company which is made otherwise than through registered stock exchange and which are not settled through NCCPL, is taxed under section 37 of the Ordinance instead of section 37A of the Ordinance. The said amendment had resulted in unwarranted tax implications on public offerings of listed securities. Through an amendment made by the Finance Act 2023, disposal of shares through initial public offer during the listing process will remain subject to tax under section 37A of the Ordinance provided the detail of such disposal is furnished to NCCPL for the computation of Capital Gains and tax thereon has been collected and paid.
- Capital gains arising on disposal of securities that were acquired before July 1, 2013 were subject to tax at the rate of 12.5 percent.
- Through Finance Act 2023, capital gains arising on disposal of such securities will be subject to tax at 0 percent. Through the Finance Act 2022 the rate of 12.5 percent tax was applicable on capital gains arising on disposal where the securities were acquired on or before the 30th day of June, 2022 irrespective of holding period of such securities. Now the rate of 12.5 percent tax shall apply on capital gain arising on disposal where the securities are acquired on or after July 1, 2013 till June 30, 2022.
Moreover, reduced rate based on holding period shall continue to apply on securities acquired on or after July 1, 2023, FBR added.
