KARACHI, June 24: Member (Tax Policy & Reforms), Mr MS Lal has invited the Managing Directors (CEOs) of the three stock exchanges for a meeting in Islamabad on Monday, June 28. The discussion is likely to centre on modalities for payment and collection of taxes by the stock exchanges.

Meanwhile on Thursday, the Central Board of Revenue (CBR) sent the remaining portion of the proposed Section 233A to the Karachi Stock Exchange. The portion relates to collection of tax by stock exchanges registered in Pakistan.

Stock brokers and investors were making various interpretations of whether what had been incorporated in the Finance Bill 2004-05 was the same as agreed in the discussion of Committee of five members-chairmen of the three stock exchanges and representatives of CBR and SECP.

The remaining portion of the proposed Section 233A received on Thursday, was circulated by the KSE to its members. To put together the jigsaw puzzle of the Section 233A, the relevant portion of the Section (other than CVT) is reproduced hereunder: "233A.

Collection of tax by a stock exchange registered in Pakistan. (1) A stock exchange in Pakistan shall collect advance tax: (a) at rates specified in Division IIA of Part IV of First Schedule from its Members on "purchase of shares" in lieu of the commission earned by such members; (b) at the rates specified in Division IIA of Part IV of First Schedule from its Members on "sale of shares" in lieu of the commission earned by such members; (c) from its members in respect of "trading of shares" by the Members at the rates specified in Division IIA of Part IV of First Schedule; and (d) from its members in respect of financing of carryover trades (badla) in share business at the rate specified in Division IIA of Part IV of First Schedule."

The Section 233A also says that the tax collected under clause (a) and clause (b) of sub-section (1) shall be "a final tax". Division IIA titled "Rates of collection of tax by a stock exchange registered in Pakistan, contains the following: (1) in case of purchases of shares as per clause (a) of sub-section (1) of section 233A-0.005 per cent on purchase value; (ii) in case of sale of shares as per clause (b) of sub-section (1) of section 233A-0.005 per cent of sales value; (iii) in case of trading of shares as mentioned in clause (c) of sub-section (1) of section 233A-0.005 per cent of traded value and (iv) in case of financing of carryover trades (badla) as per clause (d) of sub- section (i) of section 233A-10 per cent of the carryover charge.

Some experts pointed out that the significant words to be noted were that tax collected from members on purchase and sale of shares in lieu of commission earned by them, would be "final tax".

But this does not appear to be the case in respect of tax collected on trading of shares and financing of badla business. Moreover, those who delved deeper into the proposals incorporated in the Budget and the agreement reached at the meeting of the Committee of five, pointed out the it was not the "sale of shares", but the "trading of shares", which was the additional point inserted in proposed Section 233A.

The purpose of which appears to be to discourage intra-day trading and excessive speculation. "Though that would reduce volumes in the short term, it would give stability to the market and decrease volatility," said one long-term investor.

The problem that now remains is possibly to work out the modalities and technicalities of how to put the law into practice. Particularly in case of "trading of shares", it would be interesting to see how thousands of timid intra-day traders can be netted, when they would naturally make every effort to slip out one way or the other. How about buying and selling in different names?