FBR authorities were finding it difficult to understand the tax evasion techniques that the market players may be employing through relaxations allowed under an agreement with the government team to have annual
ISLAMABAD: The Federal Board of Revenue (FBR) plans to collect detailed market data from three stock exchanges for the FY2009-10 ended on June 30, 2010 to use it for maximum collection of Capital Gains Tax (CGT), imposed from July 1 under the current fiscal year’s budget.
The move is based on recognition within the FBR that full benefit of the CGT could not be realised unless that it had full data about the market transactions as on June 30 which should become the basis for assessment during the current fiscal year of the newly imposed tax on capital market investments, informed sources told Dawn.
The sources said the FBR authorities were finding it difficult to understand the tax evasion techniques that the market players may be employing through relaxations allowed under an agreement with the government team to have annual returns from individual stock investors instead of quarterly returns.
The FBR has been alerted by some private experts that it had made a mistake by allowing annual returns instead of originally planned quarterly returns because these were the individual accounts that hold the most of the unaccounted for money, commonly described as black money. The sources said the individual investors usually parked some of this money in benami accounts, sometimes in fake names and fictitious addresses.
These sources pointed out that had the individual investors been made to pay advance tax with quarterly returns as originally decided, the black money investors would have attempted to leave the stock market but two forces would have been at work to deter their exit.
First, mass exits within three months before the first return became due, resulting in market drop at considerable capital losses. Second, the market could have touched a level where the black money investors’ capital losses would have exceeded their tax liabilities on their unexplained stock investments. The concession for individual investors to file annual returns has changed the whole scenario, they said.
Now the black money will have one year to exit the market, avoiding capital losses and tax liabilities at the same time because FBR may not be able to find any trace of those who decide to leave the market with their black money transferred to unknown destinations.
They said the brokers’ community also succeeded in another intricate move when they persuaded the FBR to continue with exemption from CGT on the capital assets to be transferred from the present bourses to the demutualised stock exchanges after demutualisation.
The brokers wilfully preferred the gains from their monopoly in present stock exchanges to the benefits of tax exemption on demutualisation for the last three years.
They said the move by the Securities and Exchange Commission of Pakistan to allow margin financing that was discontinued after the 2008 market crash. It would help brokers to charge hefty interest rates on margin financing loans, promote speculation and inflate trading volumes and multiply brokerage commissions.
But more than that the margin financing will help brokers and their clients to substitute black money with borrowed money and provide an easy answer where the funds to purchase the shareholdings present in a particular account came from.
The FBR authorities have now been informed that it will be difficult, if not impossible, to find after one year when the return became due that it has in reality got nothing from its insistence to tax the shareholdings purchased before July 1, 2010. By that time, however, the black money with all the gains would have completed its exit and the borrowed money would have affected its entry and replaced the black money in stock market.
It is in this background that the FBR now wanted to call the records of investors and their shareholdings as on June 30, 2010 independently from stock brokers and Central Depository Company.
The move is based on recognition within the FBR that full benefit of the CGT could not be realised unless that it had full data about the market transactions as on June 30 which should become the basis for assessment during the current fiscal year of the newly imposed tax on capital market investments, informed sources told Dawn.
The sources said the FBR authorities were finding it difficult to understand the tax evasion techniques that the market players may be employing through relaxations allowed under an agreement with the government team to have annual returns from individual stock investors instead of quarterly returns.
The FBR has been alerted by some private experts that it had made a mistake by allowing annual returns instead of originally planned quarterly returns because these were the individual accounts that hold the most of the unaccounted for money, commonly described as black money. The sources said the individual investors usually parked some of this money in benami accounts, sometimes in fake names and fictitious addresses.
These sources pointed out that had the individual investors been made to pay advance tax with quarterly returns as originally decided, the black money investors would have attempted to leave the stock market but two forces would have been at work to deter their exit.
First, mass exits within three months before the first return became due, resulting in market drop at considerable capital losses. Second, the market could have touched a level where the black money investors’ capital losses would have exceeded their tax liabilities on their unexplained stock investments. The concession for individual investors to file annual returns has changed the whole scenario, they said.
Now the black money will have one year to exit the market, avoiding capital losses and tax liabilities at the same time because FBR may not be able to find any trace of those who decide to leave the market with their black money transferred to unknown destinations.
They said the brokers’ community also succeeded in another intricate move when they persuaded the FBR to continue with exemption from CGT on the capital assets to be transferred from the present bourses to the demutualised stock exchanges after demutualisation.
The brokers wilfully preferred the gains from their monopoly in present stock exchanges to the benefits of tax exemption on demutualisation for the last three years.
They said the move by the Securities and Exchange Commission of Pakistan to allow margin financing that was discontinued after the 2008 market crash. It would help brokers to charge hefty interest rates on margin financing loans, promote speculation and inflate trading volumes and multiply brokerage commissions.
But more than that the margin financing will help brokers and their clients to substitute black money with borrowed money and provide an easy answer where the funds to purchase the shareholdings present in a particular account came from.
The FBR authorities have now been informed that it will be difficult, if not impossible, to find after one year when the return became due that it has in reality got nothing from its insistence to tax the shareholdings purchased before July 1, 2010. By that time, however, the black money with all the gains would have completed its exit and the borrowed money would have affected its entry and replaced the black money in stock market.
It is in this background that the FBR now wanted to call the records of investors and their shareholdings as on June 30, 2010 independently from stock brokers and Central Depository Company.
-www.dawn.com
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