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Inter-governmental body clears CGT

June 04, 2012

ISLAMABAD, June 4: The Financial Action Task Force (FATF), an inter-governmental body established to set standards and promote effective legal measures for combating money-laundering, terrorist financing and related threats to the integrity of the international financial system, has cleared the new CGT regime of Pakistan as not contrary to international anti-money laundering measures.

The FATF has said that Pakistan’s Capital Gain Tax (CGT) regime was not in breach of FATF principles and the schemes would have no negative impact on implementation of anti-money laundering (AML) preventive laws in the country.

The FATF Secretariat has recommended no further action in relation to Pakistan’s (Capital Gain Tax) programme, which has been conveyed to the Securities and Exchange Commission of Pakistan.

Finance (Amendment) Ordinance No.III of 2012 dated 24 April 2012, has amended the Income Tax Ordinance, 2001(ITO) to implement the CGT regime on securities trading as proposed by the Securities and Exchange Commission of Pakistan (SECP), which has now been made part of Finance Bill 2012.

The CGT was imposed in 2010 in the country after 36 years of exemption both from taxation and disclosure of gains, but the imposition of the tax had adversely effected market activity and revenue generation in the capital markets.

“Revised CGT regime was therefore promulgated on the recommendations of SECP, as a fiscal package to revive Pakistan’s capital markets and also to achieve government’s objective of documentation of economy,” an official of the SECP said.

The official further stated that regulations in this regard were formulated in coordination with the Financial Monitoring Unit of Pakistan in line with the FATF rules principals over the international AML principles.

While the Ordinance No. III of 2012 allows that any prior investment in listed securities, remains without the nature and source of that investment being asked by the FBR, if a statement of investment, wealth statement and income tax return as of 30 June 2010 is filed, and the amount remains invested for a period of 45 days, up to 30 June 2012.

FATF Secretariat has assessed that the CGT scheme does not have any negative impact on implementation of any FATF recommendations and is in compliance with the FATF Principles on tax compliance schemes.