Karachi: The apex regulator Mr Muhammad Ali and the member advisory board, Federal Board of Revenue (FBR) Mr Shabbar Zaidi stated on Tuesday that the proposal of ‘no questions to be asked on sources of funds’ invested in stocks, for two years (till June 2014) in the CGT regime, would not facilitate ‘whitening’ of ‘black’ money. They stressed that ‘caveats’ were being placed to block such activities. The minimum holding period of 120 days on ‘weighted average’ basis was to be fixed, which would rule out money-laundering. Holding of less than 120 days (four months) would be open to investigation of source of funds, they said.

At a mid-morning discussion on a private TV channel, the SECP chairman reassured that the mechanism and automatic system for collection of CGT by the National Clearing Company of Pakistan Limited (NCCPL) were being put into place. “We are optimistic that the reformed regime of CGT will be implemented, as scheduled, from April 1”, he said. Mr Muhammad Ali observed that the objectives of CGT were three-fold: To document the markets; increase tax revenue and bring more taxpayers into the tax net. “In the next two years (due to the levy of CGT), all capital market would be fully documented”, he said. Mr Muhammad Ali stressed that checks and balances would apply to stem any effort at money laundering. The CGT was imposed in July 2010, but could not be implemented in two years, which necessitated its reformation.

Mr Shabbar Zaidi said that it was transition from presumptive tax to CGT. The provision of collection by NCCPL could be described as: “Outsourcing of tax collection by the government”, he said and added that, it should be seen as an independent party (NCCPL) performing the functions of collection for FBR, “for the time being”.

The step would set at rest investors’ fear of harassment at the hands of the taxman if he came in direct contact with him. He said that the FBR had suggested adding caveats to the amnesty proposal so that money-laundering could be prevented.

Earlier in the morning a report released by brokerage InvestCap, analysts Khurram Schehzad and Abdul Azeem wrote that during the meeting of the Tax Reform Coordination Group (TRCG) on Friday last, the FBR proposed changes in reformed CGT proposals put forwarded by the SECP and endorsed by the Ministry of Finance (MoF).

One of them related to the complexities in adding the new law to the prevailing Income Tax Ordinance, 2001. After a day long discussion in which the TRCG sought views of the stakeholders, it was proposed that a constitutional way was to be found in implementing the changes in the CGT regime.

It was decided that it could be done through the introduction/addition of an Eighth Schedule to the Income Tax Ordinance 2001 to handle all the CGT-related issues and amendment of total immunity to investigation of the source of income of stock investors till 2014, by adding a minimum holding period.

The addition of the new Schedule, the TRCG thought could be quickly done through a Presidential Order which, later on, would be attached as an essential part of the Ordinance through the Finance Act. The analysts believed that the amended Ordinance might be on time, before the Apr’01, 2012 deadline earmarked for the changed CGT regime. Yet its implementation was thought to be effectively in place not earlier than the announcement of the upcoming budget, considering that the Senate elections due in March may divert all official attention to politics.