If you are a Pakistani resident, it is essential to have a basic understanding of capital gains tax and its implications. The Income Tax Ordinance 2001 in section 37 deals with the concept of Capital Assets, which includes all types of property held in Pakistan, whether or not connected with business. In this article, we will discuss the key aspects of capital gains tax, including its definition, exclusions, and tax rates.
What is Capital Gains Tax?
Capital gains tax is a tax on the profit earned from the sale of an asset that has increased in value over time. The capital gain is calculated as the sale proceeds received minus the cost of the asset. This tax is payable by the person who has made a profit from the sale of the asset. In Pakistan, capital gains tax is governed by the Income Tax Ordinance 2001.
What is a Capital Asset?
A capital asset is any type of property held in Pakistan, whether or not connected with business. However, there are some exclusions, including stock in trade held for business purposes, depreciable assets, and movable property held for personal use.
Capital Gains Tax Rates for Immovable Properties
The new rates for capital gains tax on immovable properties in Pakistan are as follows:
- Where the gain does not exceed Rs. 5 million, the tax rate is 3.5%
- Where the gain exceeds Rs. 5 million but does not exceed Rs. 10 million, the tax rate is 7.5%
- Where the gain exceeds Rs. 10 million but does not exceed Rs. 15 million, the tax rate is 10%
- Where the gain exceeds Rs. 15 million, the tax rate is 15%
It is important to note that the new rules state that 100% of the gain is taxable irrespective of the holding period. Previously, if the holding period of the asset was more than one year, only 75% of the gain was taxable.
Capital Gains Tax Rates for Movable Properties
For movable property, the capital gains tax rate is the normal corporate rate of tax.
Capital Gains Tax Rates for Listed Securities
For listed securities, the capital gains tax rates are as follows:
- For securities held for less than one year, the tax rate is 15%
- For securities held for one to two years, the tax rate is 12.5%
- For securities held for two to three years, the tax rate is 10%
- For securities held for three to four years, the tax rate is 7.5%
- For securities held for four to five years, the tax rate is 5%
- For securities held for five to six years, the tax rate is 2.5%
- For securities held for more than six years, the tax rate is 0%
It is important to note that the rate is 12.5% for securities bought on or before June 30, 2022.
Conclusion
In conclusion, understanding capital gains tax is crucial for anyone who is a resident of Pakistan. It is important to know the new rates for capital gains tax on immovable properties, movable properties, and listed securities. Failure to comply with these regulations can lead to legal and financial repercussions. We hope this guide has provided you with a comprehensive overview of capital gains tax in Pakistan.
