September 14, 2006	Thursday	Sha'aban 20, 1427

KARACHI, Sept 13: Stamp duty on transfer of shares raised its ugly head on Wednesday, when a four-page letter issued by the government of Sindh to Central Depository Company (CDC) pointed to an amendment to The Stamp Duty Act, 1899 “to cover electronic transactions”.

The levy of stamp duty on transfer of shares to or through CDC at 0.1 per cent of face value was decreed in the Sindh budget 2006-07, which was followed by a hue and cry by investors. After several meetings between the market monitors and the Sindh government, the issue seemed to have died down.

The Wednesday morning letter to CDC, which it forwarded to the stock exchanges, showed that the issue was still alive and kicking. The letter turned the stock market upside down, which was rising on its Tuesday’s momentum, but turned south to close by a dip of 168 points in the KSE-100 index.

The stock market had expressed its distaste for what participants believed was a “new tax”, though the letter suggested that the stamp act provided for such duty on transfer of shares since 1996. A source in the knowledge of the issue said the matter was supposed to be discussed between M.A. Jalil, adviser to the chief minister on finance, and the heads of CDC and SECP on Thursday.

Some of the salient features of the letter are: That the duty under Stamp Act was levied on legal transfer of title of property as well as securities, shares, stocks, bonds, etc. The government did not concur with the KSE MD’s assertion to the contrary and observed that any transfer from one CDC account or sub-account to another account or sub-account was a “valid and effective transfer of title to the securities”.

Hence all such transfers were subject to stamp duty under the stamp act.

The letter further stated that the amendment to Stamp Act (Provincial Finance Act, 2006) could not be considered as a tax on investment, arguing that it was a tax on trading rather than on investment.

“The stamp duty of 1.5 per cent on face value on paper shares is in effect since long and there has been no problem with anyone in the last 10 years,” stated the government, adding: “It needs to be appreciated that the government of Sindh had lowered stamp duty by 15 times on transfer transactions in CDC and it may also be noted that face value of shares, this day is much lower (about 10-50 times) than the actual sale price of shares.”

The chief inspector of stamps, who signed the letter, said further that the whole matter had been reviewed by them and they did not consider that “such a small percentage” of duty would have an impact on the trading volume of KSE. He pointed out that the duty was leviable on companies registered in Sindh irrespective of the fact where the trade takes place. The letter went on to say that the Finance Act, 2006 had removed anomaly by including electronic documents to be treated as instruments under the stamp act.

In conclusion, the chief inspector of stamps directed CDC to recover stamp duty and deposit the same in an (identified) government account “on regular basis in the larger national interest”.

To most of the small investors in stocks, the stamp duty letter came as a bolt from the blue. They could hardly make head or tail of cursory reading of the four-page matter. But major players who asked not to be identified were incensed by what they thought was a reopening of an already settled matter.

Some brokers agreed that it was not the sum of money (which at 0.1 per cent of Rs10) was conceded to be a minor amount, but the ‘psychological impact’ that was doing the damage. Their thoughts ran thus: “Here was another tax, which though small this year, could go on increasing going forward.” Stakeholders hoped that an amicable solution could be reached in the meeting of the big wigs on Thursday.