According to a letter of Chairman PTAA Javed Iqbal Qazi issued here on Tuesday, the proposed amendment said, "For removal of doubt it is clarified that shares of a company disposed of, in the tax year for which the company has the status of a public/ listed company, shall be deemed to be securities with effect from the date of acquisition, irrespective of the fact that the said securities when acquired, the said company was not a public/listed company," he proposed.
Javed Iqbal Qazi said that it is submitted that section 37A of the Income Tax Ordinance, 2001 pertaining to capital gain on disposal of securities was inserted vide Finance Act, 2010. Shares of public companies were excluded from the definition of "Capital Asset". The Section 37(3) on plain reading the law enunciated in section 37A as per our and FBR's understanding as under:
"Shares of a company disposed of, in the tax year for which the company has the status of a public/listed company, shall be deemed to be securities with effect from the date of acquisition, irrespective of the fact that the said securities when acquired, the said company was not a public/listed company."
The chairman PTAA said that it is evident from the rules on the subject, farmed by Federal Board of Revenue (Income Tax Rules, 2002), and the procedure for computation of capital gain and collection of tax thereon followed by National Clearing Company of Pakistan Limited (NCCPL) (under the instruction of FBR) that the law given, in section 37A is as has been stated above.
Change in definition of "Security":
On March 4, 2016 a division bench of Sindh High Court through a judgement, repeated as 2016 PTD 1813/2016 SLD) 1141 in re: CP No D-1591 of 2015 (Khalid Mansoor vs FBR & 3 others), held that for a share of a company to be security, it must have been acquired after the company has become public/listed. It appears that the Court was not assisted properly by the counsels of the FBR. Even no appeal was filed in Supreme Court of Pakistan by FBR and no notice was issued to the Attorney General for Pakistan as such the federal government was not made a party.
Impact of change in the Definition of "Security":
Javed Iqbal Qazi observed that the impact of the said change is as under:
Listing of new companies has almost come to a halt.
Shares of a company shall be split permanently in two categories; shares acquired after listing shall be called securities, and shares acquired or available prior to listing (such as shares of sponsors/issuers and even shares sold in IPO) shall stay as shares for rest of life of the company.
As shares of a company acquired before listing do not attain the status of security, the same cannot be brought in stock market for sale, as the stock exchange deals in securities (of listed companies) only.
It is not clear how and from where someone will acquire security when it is not "for sale" as a security.
What is happening at NCCPL:
The chairman PTAA said, "We have learnt that FBR has directed NCCPL to implement the above-stated judgement of Sindh High Court." It has also been learnt that NCCPL has requested CDC to split its data to show shares of companies acquired before listing and securities acquired after listing.
The NCCPL at its own level is trying hard to get the law amended to restore it as it originally was but they have not succeeded so far, the chairman PTAA said.
It is requested that direction may be issued to the federal ministers of finance, law and parliamentary affairs to add/insert an explanation (proposed below) through amendment brought by way of Supplementary budget being announced in the Parliament on 23.01.2019 so that the damaged caused to the stock market be controlled:
"For removal of doubt it is clarified that shares of a company disposed of, in the tax year for which the company has the status of a public/ listed company, shall be deemed to be securities with effect from the date of acquisition, irrespective of the fact that the said securities when acquired, the said company was not a public/listed company," Javed Iqbal Qazi proposed.
