Deciding a Capital Gains CaseHeads of Income

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6. Eighth ScheduleCapital Gains

Computation of Capital Gains on Listed Securities:• Capital gain from listed securities, shall be computed in accordance with 8th Sched• Tax shall be collected from Tax Payer by NCCPL• CDC, PMEX, PSX and any other person shall furnish information required by NCCPL to discharge its tax collection responsibility.• In case of non provision of information FBR shall enforce provision of such information• For this purpose NCCPL shall:

o develop an automated systemo issue certificate to Tax Payer specifying capital gains computed and tax collected therefrom. This certificate shall be

for a financial year or a shorter period requested by Tax Payer or Commissioner conclusive evidence of capital gains under 8th Sched and tax collected filed by Tax Payer alongwith return of income

• NCCPL shall furnish quarterly statement to FBR in respect of capital gains and taxes computed thereon• Tax collected by NCCPL shall be deposited in separate bank account with NBP• Tax collected + interest accrued on above account shall be paid to FBR annually on or before following 31st July after end of each year

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6. Eighth ScheduleCapital Gains

Source of Investment not to be enquired:• Where investment in listed securities is made prior to introduction of 8th Sched, no enquiry as to nature and source of investment shall be made if following conditions are fulfilled:

o Return of income, wealth statement & statement of investment for year 2012 is filed with Commissioner within due dateo Amount remained invested for atleast 45 days upto 30.06.2012

• Where Investment in Shares of Public Co. is made after introduction of 8th Sched and before 30.06.2014, no enquiry as to nature and source of investment shall be made if following conditions are fulfilled:o Return of income, wealth statement & statement of investment for relevant tax year is filed with Commissioner within due dateo Amount remained invested for atleast 120 days upto 30.06.2014o Tax on Capital Gains has been paid in accordance with 8th Schedule

• Amount of investment shall not include market value of open sale position in futures and derivativesOption to Tax Payer:• After obtaining permission from Commissioner, Tax Payer can give irrevocable option to NCCPL for not to be taxed under 8th Sched• In case of availing such option, above relief from enquiry as to source of investment shall not remain available

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6. Eighth ScheduleCapital Gains

Obligations of NCCPL:• Quarterly system and procedural audit of NCCPL shall be conducted, to verify implementation of 8th Schedule.• Audit shall be conducted by any of following:

o Pakistan Revenue Automation (Pvt) Ltd [PRAL]o Any other company/firm appointed by FBRo Any authority appointed under S-209, not below rank of Additional Commissioner of Inland Revenue

• NCCPL shall implement recommendations made in audit report & also make adjustment for short or excess deduction of tax• No penalty shall be imposed on NCCPL on account of any mistake/error/omission• In case NCCPL is unable to recover any tax, it can refer the case to FBR for recovery

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7. Rule 13A to 13PCapital Gains

Basic Determinants for Capital Gains

Date of Disposal / ExitDate of Acquisition / Entry

Holding Period[R-13C & 13L]Disposal & Consideration

[R-13B & 13L]Acquisition & Cost

[R-13A & 13L]

Gain/Loss[R-13D, 13E & 13N]Others:

• Loss not to be recognized [R-13F]• Exemption on Capital Gains [R-13G]• Payment of Tax [R-13H]• Records [R-13I]• Exchange of Information [R-13J]• Violation & Penalties [R-13K]• Quarterly Statements [R-13M]• Statements & Forms [R-13O]• Clarifications & Explanations [R-13P]

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Acquisition & CostCapital Gains

Acquisition [R-13A]Form

Platform

Mode

Evidence

Electronic Book EntryPhysical CertificatesStock MarketOff Market TransactionPurchase, Exchange, Gift, Bequest, Inheritance, Bonus Issue, Right Issue, Leverage SchemeOpen Ended Mutual Fund >>Certificate of AccountOthers >>Broker’s Bill of Purchase, CDC Statement of Account, Payment of Cost fo Acquisition through cheque, Broker Generated Computerized Ledger of invetor’s brokerage account

Cost [R-13L(1)(d)]

IPO Bonus Right Bequest/Inheritance Others

Actual price paid to issuer

Tax paid u/s 236M & 236N

Discounted price at which shares issuedFMV at time of transaction

Price paid ORWould have paid

Tax not paid Ex-Bonus price as determined u/s 236M & 236NZERO

Rule 13A to 13P

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Disposal & ConsiderationCapital Gains

Disposal [R-13B]Form

Platform

Mode

Evidence

Electronic Book EntryPhysical CertificatesStock MarketOff Market TransactionSale, Exchange, Gift, Transfer

Open Ended Mutual Fund >>Certificate of AccountOthers >>Broker’s Bill of Purchase, CDC Statement of Account, Payment of Cost fo Acquisition through cheque, Broker Generated Computerized Ledger of invetor’s brokerage account

Consideration [R-13L(1)(e)]

Market Price received orwould have received on disposal

Rule 13A to 13P

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Capital Gains

Capital Gain / LossRule 13A to 13P

Derivatives[R-13E] General

FutureOption

RightsDeliverable Future Cash Settled Future

Long Position Short Position

[R-13D] [R-13N]

• FIFO not applicable in case of same day purchases, instead Average Method to be used [R-13N(5)]• NCCPL shall add following to transaction cost and consideration• 0.5% of trade as incidental expenses [R-13N(8)]• NCCPL shall deduct financing cost from consideration if financing obtained from NCCPL Leverage Market Scheme [R-13N(9)]• NCCPL shall collect amount on monthly basis in a manner that every month end it has amount equal to estimated tax liability on Capital Gains [R-13N(10)]

• Gain/loss computation shall be made on basis of FIFO inventory accounting method• Capital loss shall be adjusted only against capital gain of security• Capital loss cannot be carried forward

Consideration X- Cost XGain/Loss XConsideration from disposal of security X- Exercise Price XGain/Loss X

Cash receipt/payment to close X

Consideration on disposal X- Cost of Acquisition XGain/Loss X

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Capital Gains Rule 13A to 13P

Holding PeriodFrom ToFuturesOthers

Short PositionDate of Entry [R-13L(1)(i)] Date of Exit [R-13L(1)(j)]When sold short [R-13C(2)] Purchase to cover short position [R-13C(2)]

Date of Disposal [R-13L(1)(h)]Date of Acquisition [R-13L(1)(g)]

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Capital Gains

Liability in respect of certain security transactions [S-112]If• owner of security disposes of and re-acquires a security AND• the result of the transaction is that income in respect of the security is receivable by any other personThen• the income shall be treated as the income of the owner and not of the other person

For purpose of this section security includes bonds, certificates, debentures, stocks and shares.

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Capital Gains

Advance Tax [S-147(5B), 236C, 236K & 236W] Securities [S-147(5B)]

Purchase/Transfer of Immovable Property [S-236K] Purchase/Transfer of Immovable Property [S-236W]

From Purchaser

Sale/Transfer of Immovable Property [S-236C]

From SellerIf holding period > 3 yearsthen not to be collected

Immovable Property

Holding period 0-6 months, tax @ 2% of Capital Gain during QuarterHolding period 6-12 months tax @ 1.5% of Capital Gain during Quarter

Advance Tax not applicable on individual investor 1st Sched, P-IV, Div-X 1st Sched, P-IV, Div-XVIII @ 3%

Adjustable Not Adjustable