Confusion prevails in stock market: CVT resolution
By Dilawar Hussain
KARACHI, June 23: The Capital Value Tax (CVT) on purchase of shares looked finally to have been resolved. But other matters appear to be raising their ugly head.
Speaking at the concluding session on the budget in Parliament, the finance minister spelt out the verdict on the issues of taxes on the stock exchanges.
On Wednesday, many stock brokers spent the day comparing those reported in the press, with the proposals agreed upon in the meeting of five in Islamabad (chairman of the three stock exchanges, representative of CBR and the SECP). Was there a deviation between the two?
No one was quite sure. There were market men who thought that both were same to the dot. But others pointed out that the committee agreement had specified four proposals, while the Finance Minister had added one more.
The fifth one was regarding 0.005 per cent presumptive withholding tax on value of "sale of shares" to be collected from brokers in lieu of the commission earned by them. Those who objected thought that the said tax had been agreed on value of "purchase of shares" only and not on their sale.
The implication was believed to be in the form of increase in operating cost of the broker, which he was likely to pass on to the client by charging higher commission. The impact was calculated to range between Rs250 and Rs300 million.
On Wednesday, the Karachi Stock Exchange came out with a notice, circulated to all members, which said: "Further to the meeting of chairman of three stock exchanges with the government officials and our subsequent Notice No. KSE/N-3047 dated June 18, 2004, the Managing Director of the Exchange has received various representations today, from the market participants, whereby it is observed that the summing up of the budget proposals, related to the stock exchanges, have not been clearly reported in the press, hence causing uncertainty for the market participants."
The KSE further stated that in order to clarify the ambiguity, MD contacted the Member (Tax Policy & Reforms) CBR and sent a fax soliciting clarification. The Member (Tax Policy & Reforms) responded with a hand written note, providing certain relevant portions of the revised Finance Bill 2004-2005.
"Further, it is our understanding that a new Section 233A would be inserted, in the Finance Act, 2004-2005, in light of the tax proposals to be approved by the Parliament," the KSE notice said.
The "most urgent" letter sent by the KSE MD to MS Lal, Member (Tax Policy & Reforms) mentioned in relation to the summing up of budget proposals by the Government that "while a couple of newspapers have mentioned a presumptive withholding of Income tax 0.005 per cent on sale value of shares in lieu of the commission, whereas others have not printed such details".
The ambiguity, the KSE MD said had caused uncertainty in the minds of the market participants. The MD asked for a copy of the relevant section of the amended bill so as to enable him to clarify the matter before the opening of market on Thursday.
The Member (Tax Policy & Reforms) scribbled notes across the KSE letter but he did promptly sent the copy of the relevant section of the Finance Bill. In "Division IIA", titled "Rates for collection of Tax by a stock Exchange Registered in Pakistan", there, sure enough, are four sub-sections, instead of three (not including the one on CVT).
Sub section (ii) states (tax would be collected) "in case of sale of shares as per clause (b) of sub- section (1) of section 233A at 0.005 per cent on sale value". Unless some one clarifies the matter, all of that is likely to confound the confusion. It is understood that some members of the KSE were demanding an extra-ordinary general meeting to debate the issue.
