Capital gains tax is a type of tax levied on the profit earned from the sale of an asset, such as property, stocks, and shares. It is an important tax that affects many investors and businesses in Pakistan. In this article, we will discuss what capital gains tax is, how it works, and how it is calculated in Pakistan.
What is Capital Gains Tax?
Capital gains tax is a tax on the profit made from selling an asset. It is calculated based on the difference between the purchase price and the selling price of the asset. Capital gains tax is applied to a variety of assets, including stocks, real estate, and other investments. The goal of the tax is to generate revenue for the government while encouraging investment and economic growth.
How Does Capital Gains Tax Work in Pakistan?
In Pakistan, capital gains tax is applied to the sale of immovable property, shares, securities, and other assets. The tax is levied on the net gain realized from the sale of the asset. The net gain is calculated by subtracting the purchase price of the asset from the selling price.
Capital gains tax is applicable to both residents and non-residents of Pakistan. Non-residents are required to pay capital gains tax on the sale of any immovable property located in Pakistan, while residents are taxed on the sale of any asset, whether it is located in Pakistan or abroad.
How is Capital Gains Tax Calculated in Pakistan?
The capital gains worked out as above are subject to tax at the following rates:
| Sr.no | Holding period | Rate of Tax (%) | ||
| Open Plots | Constructed property | Flats | ||
| 1 | Where the holding period does not exceed one year | 15 | 15 | 15 |
| 2 | Where the holding period exceeds one year but does not exceed two years | 12.5 | 10 | 7.5 |
| 3 | Where the holding period exceeds two years but does not exceed three years | 10 | 7.5 | 0 |
| 4 | Where the holding period exceeds three years but does not exceed four years | 7.5 | 5 | 0 |
| 5 | Where the holding period exceeds four years but does not exceed five years | 5 | 0 | 0 |
| 6 | Where the holding period exceeds five years but does not exceed six years | 2.5 | 0 | 0 |
| 7 | Where the holding period exceeds six years | 0 | 0 | 0 |
Capital gain on Securities
Gain on disposal of listed securities (that was previously chargeable to tax @ 12.5% irrespective of the holding period) shall now be subject to revised tax rates based on holding period, for securities purchased post July 1, 2022. The revised rates are as under:
| Holding period | Tax (%) |
| Less than one year | 15 |
| From one year to two year | 12.5 |
| From two years to three years | 10 |
| From three years to four years | 7.5 |
| From four years to five years | 5 |
| From five years to six years | 2.5 |
| More than six years | 0 |
Conclusion
In conclusion, capital gains tax is an important aspect of the taxation system in Pakistan. It is applied to the sale of various assets, including immovable property, shares, and securities. The tax rate varies depending on the type of asset being sold and the holding period of the asset. It is important for investors and businesses to understand the capital gains tax laws and regulations to ensure compliance and avoid penalties.
