ISLAMABAD, June 17 : The government has agreed to reduce the rate of capital value tax (CVT) from 0.1 per cent announced by the finance minister in his budget speech to 0.01 per cent, Dawn has learnt.

"The five-member committee constituted earlier by the government to resolve the issue has finally recommended to the government to levy 0.01 per cent CVT and income tax at a rate of 0.005 per cent on the purchase and supply of shares," said a senior official of the revenue division.

Well-placed sources told Dawn on Thursday that the recommendations are expected to be included in the Finance Bill 2004-05, when parliament approves it by end of the current month.

The committee has also proposed imposition of 10pc withholding tax on carry over charges. These proposals were discussed at length during a meeting of the five-member committee on Thursday with chairman Central Board of Revenue (CBR), M. Abdullah Yousuf.

Later on, the sources said that the committee also met the finance minister Shaukat Aziz to discuss with him the proposals before finalizing them. The stock exchanges are said to have assured the tax authorities their help in raising around Rs1.60 billion from the stock trading.

The government was expecting to raise Rs6 billion through 0.1 per cent CVT on shares. At present, the stock markets are contributing a total of Rs800 million annually to the government revenue that would now be doubled to Rs1.6 billion.

Talking to Dawn, the chairman, Islamabad Stock Exchange, Umar Iqbal Pasha said that they held fruitful meetings with the chairman CBR, M. Abdullah Yousuf and Finance Minister, Shaukat Aziz. He said that the minister was positive and he was all out for the promotion and development of the stock trading.