KARACHI, June 15: The Karachi Stock Exchange debated and proposed to forward a three-point strategy to the government, which could assist CBR in collecting its targeted Rs1.5 billion revenue from stock trading.
If accepted and implemented, it would quash the need to impose the proposed Capital Value Tax (CVT). Brokers and traders have been up in arms, following the proposal in the Federal Budget 2004-05, to levy CVT at 0.1 per cent on purchase of shares.
According to stock market sources, a scheduled meeting of the Board was held on Tuesday, which approved three measures, which put together could help raise the CBR's targeted revenue from the stock market. The meeting of the Board was followed by a general meeting of the members, which endorsed the Board's decision.
But before naming the three point strategy, it might be pointed out that there appears to have been a huge expectation gap, between what the CBR thought it could squeeze out from the flourishing stock business and how much revenue it really could raise.
"Initially, CBR had Rs9 billion in mind, but even if you go by peak times when the volume is at its high, the CVT collection would not have been more than Rs5 billion," said one source privy to the meeting.
He observed that it was pointed out to the tax collectors that in case CVT was imposed, turnover would drop to just about a fourth of the current trade. That would bring Rs1.25 billion under CVT to the government's coffers. An agreement to that was believed to have been reached among all parties. The question that remained was, how to go about collecting the Rs1.25 billion?
That seems to have been proposed in the three-point packaged deal. It includes: first: to increase withholding tax on brokers' commission from 5 to 10 per cent, as full and final settlement.
As per estimates, that would raise revenue in excess of Rs1 billion for the exchequer. Secondly, the bourse would assist the CBR in collection of tax on trading gains on intra-day trade, if it does not fall within the scope of capital gains.
The rationale of the measure was said to be to help in documentation and bringing into the tax net gains made on intra- day basis, between broker to broker. Since such trades do not fall under the T+3 system, a mechanism has to be devised where tax could be collected on such 'trading gains'.
The third measure was to accede to the CBR's demand of assisting it in devising a mechanism whereby COT income could be fully collected. The COT income, under the law, is taxable.
But it was the CBR's contention that investors were evading such taxes by clubbing such income as those earned under capital gains. A meeting is now supposed to be held by the Committee of five: chairman of the three stock exchanges; representatives of the CBR and that of the SECP, to discuss the KSE's proposals.
Our reporter from Islamabad adds: The five members committee to formulate recommendation on the proposed levy of 0.1 per cent as Capital Vale Tax will meet here on Wednesday in the Central Board of Revenue (CBR).
An official source in the CBR told Dawn on Tuesday that the committee would discuss in details the actual impact of the proposed levy on the purchase of shares. The committee, after the meeting, is expected to submit their report to the government, said the official and added it is likely that the government might withdraw the levy.