THE stock market of Pakistan was surprised by the announcement of the recent annual budget 2011-12, where despite consideration and assurance to all stakeholders by different quarters for exemption from capital gains tax (CGT) nothing was stated and declared.

Interestingly, the matter is still ambiguous and is surrounded by controversies with no clear policy defined, anticipated or declared which is also causing concern amongst stock traders.  With no second opinion, the stock market is an important place for trade activities and must be in effective network of tax to contribute positively in achieving targets set by tax collecting machinery and mechanism. The stock market is consistently in the list of good taxpayer in the form of FED and CVT in the past with the most prompt methodology of collection during trade, and deduction moving to the national exchequer with no time to delay in the most effective documented pattern.

Planning to get more juice from the same sugarcane, the idea of CGT, is an inquisitive plan with a lot of ifs and buts and is likely to go down. A definite damage to market will be caused if decision is not taken for exemption right now. Much often debated term CGT is charged on capital gains, the profit realised on the sale of a non-inventory asset purchased at a lower price. The most common capital gains are realised from the sale of stocks, bonds, precious metals and property.

Not all countries implement CGT and most have different rates of taxation for individuals and corporations but this form of tax collection pattern was announced last year by the government.  The decision of CGT collection is for capital gains but how the capital loss will be treated as stock is a game of equal exposure in profit, and loss seems to be a question with no solid and satisfactory reply.

The modality of collection by return filing also makes investors hesitant and reluctant with the expected intricate and controversial relationship between the taxpayer and the collector of our system. Our market also often traditionally crashes roughly after two to three years due to heavy losses, sometimes with malpractices or at other times due to effects of recession or international trends. Gauging losses in such an eventuality is also a matter of concern. It is also pertinent to note that the market is still struggling to prosper in an extremely poor law and order environment with political issues which often leads to serious uncertainties.

Small investors, financial institutions and, most importantly, foreign inflow is consistent and facing all odds, adding regular strength to indices. Mere damage of confidence may lead to a serious situation which makes it difficult for the stock market to operate.  The progress milestone achieved through introduction of leverage product seems to be in vain, as volumes are diminishing and lacklustre activities are visible. This results in loss of investors’ interest.

An immediate step to exempt the stock market from the burden and fear of CGT is essential, and the most wanted need and decision should be announced without any delay to restore confidence in the market.

FAHIM AKHTAR
Karachi