Minister of Finance Dr Abdul Hafeez Sheikh is expected to announce some major incentives to the investors of stock exchanges including revised procedure on collection of the capital gains tax (CGT) and immunity from probing source of investment made in stocks and shares during past, at the Karachi Stock Exchange (KSE) on Saturday (January 21).

Sources told Business Recorder here on Friday that Finance Minister, SECP Chairman Muhammad Ali and senior officials of the Federal Board of Revenue (FBR) and Securities and Exchange Commission of Pakistan (SECP) would visit KSE and Finance Minister would also address the members and brokers of the KSE. Senior members and brokers of Lahore Stock Exchange (LSE) and Islamabad Stock Exchange (ISE) would also participate in the function at the KSE.

According to sources, there is a strong possibility that the Minister of Finance would announce that the past investment in the stocks and shares will not be probed under section 111 of the Income Tax Ordinance 2001.

Moreover, it is also expected that the government would also impose a bar on the officials of Inland Revenue Service from probing investments made in the stocks and shares during the past five years. In case of this announcement has been made by Finance Minister, the FBR cannot ask for source of investment in stock and shares during the last five years.

The rate of the CGT on the stock exchanges may not be changed, but the government can freeze the CGT rate at existing levels for 2011-12 as per Income Tax Ordinance 2001, if necessary, sources maintained.

According to the invitation of the KSE to the guests, 'Finance Minister along with Chairman SECP will be addressing the capital market constituents on the CGT reforms and other market developmental matters on Saturday (January 21) at Karachi Stock Exchange'.

The SECP has proposed that as the documentation is not available to substantiate the gains made from capital markets transactions during the exempt period, it is proposed that applicability of Section 111 of Income Tax Ordinance, 2001 requiring unexplained income or assets may be deferred for funds invested in capital markets till June 30, 2014. Post-June 2014, highest or peak value of an investor's portfolio between now till then should be treated as income generated from the capital market and part of investor's wealth.

It is further proposed to abolish the WHT under section 233A to rectify double taxation anomaly and to freeze the CGT rate at the current rate applicable for the year 2011-12.

The SECP has proposed that the continuation of withholding tax after CGT is double taxation i.e. taxing both turnover and net income. Equity demands that with the imposition of CGT, withholding tax (WHT) on turnover should be done away with.

The SECP has also proposed comprehensive amendments in the Income Tax Ordinance 2001 to revise collection mechanism of the CGT from stock exchanges. The SECP has further proposed that National Clearing Company of Pakistan (NCCPL) shall act as a withholding agent to deduct and deposit the CGT from investors' transactions.

The investor will file tax return, including the CGT deposited, based on the certificate provided by NCCPL and would be exempt from CGT record maintenance requirements under CGT Rules of the FBR.

The SECP has further proposed to freeze the CGT rate at existing levels and a new clause 27 be introduced in Part-II of the 2nd Schedule of the Income Tax Ordinance 2001.

The SECP stated that the proposed amendments in CGT regime bear advantages including documentary trail of undocumented income; no presumptive regime - example for other sectors; correction of anomaly where exempted gains in past were not documented; higher revenue for the government; broadening of tax base; depth in trading volume; efficient price discovery; efficient capital formation and resource allocation; higher possibility for privatisation and attraction of foreign portfolio investment, SECP maintained.

"Finally the news that stayed the core reason behind over 865 points gains in last six sessions is likely to be made public, when the government dignitaries will visit KSE", Hasnain Asghar Ali at Aziz Fidahusein Co said.

"The rumours echoing in the arena suggesting acceptance of proposals forwarded by the SECP regarding CGT computation by National Clearing Company of Pakistan Limited (NCCPL) and amnesty for investors by FBR and Ministry of Finance," he added.

The imposition of CGT and its mode of collection remained a major concern for the market players since its imposition.

Analysts believe that the imposition of CGT and its mode of collection was the major reason behind the drastic decline in the daily trade at KSE.

"The significant increase in daily trade was due to aggressive participation of local investors on expectations over the positive news regarding CGT likely to be announced by the Finance Minister during his visit to KSE on Saturday," analysts said.