Regime of Capital Gain Tax- CGT Presentation NCCPL 1

Back Ground of CGT Regime 2

3  The SECP, in order to strengthen the Capital Market in Pakistan, forwarded a proposal to the Federal Board of Revenue (“FBR”) for Revamping of CGT Regime.  This was Intended to Provide Ease of Calculation and Documentation to Investors.  Accordingly, NCCPL shall be Responsible to Compute, Determine, Collect and Deposit CGT to FBR. Back Ground of CGT Regime

4  CGT Rules have been revised though the promulgation of Finance (Amendment) Ordinance, 2012 effective from April 24,  Section 100(B) has been inserted in the Income Tax Ordinance,  For detailed treatment of CGT, Rules and Procedures have been mentioned as follows: Rules for the Computation of CGT on Listed Securities have been devised in Eight Schedule under section 100(B) of the Income Tax Ordinance, Special Procedures for Computation of Capital Gains and Collection of Tax under the Eighth Schedule and Other Related Matters described in rules 13N to 13P of the Income Tax Rules, Back Ground of CGT Regime

Overview and Procedures of CGT Regime 5

6  Following are the Persons/Investors to which new CGT Regime will be applicable: Individual Investors (local and foreigners); Brokers; and Corporate Entities (local and foreigners).  However, following Persons/Investors will NOT be covered under new CGT Regime: Mutual fund; Banking Company; Non-Banking Finance Company; Insurance Company; Modaraba; ‘Foreign Institutional Investor’ (this exclusion have been lifted through Finance Act, 2014); and any person or class of persons as notified by the FBR. Overview and Procedures of CGT Regime

7  Any Person/Investor may Opt-Out from the new CGT Regime.  For Opting-Out, Person/Investor shall be required to file an Irrevocable Option to NCCPL after obtaining prior approval of the Income Tax Commissioner in the Prescribed Manner.  CGT Regime will NOT be applied on such Person/Investor who Opted- Out.  CGT Rates: For holding period more than 24 - months no CGT will be computed. Overview and Procedures of CGT Regime Tax YearHolding period less than 1 year Holding period greater than 1 year but less than 2 years %10%

8 Principles of Holding Period of Inventory Before the Promulgation of CGT Regime  Same principles of holding period of inventory has been applied on Foreign Institutional Investors with necessary modifications. Overview and Procedures of CGT Regime S.NO.Holding PeriodInventory Age Price 1.Securities Balance As-of 23 rd April 2011 More than One Year Closing Price of 23 rd April Securities have been Acquired or Disposed off Between 24 th April 2011 to 23 rd April Determined as per the Actual Acquisition and Disposal Market-Based Transactions- Transaction Price Non-Market-Based Transactions - Deal Price or Closing Price, as the case may be.

9 Principles for Physical Securities Deposited into CDS  Same principles for Physical Securities Deposited into CDS has been applied on Foreign Institutional Investors with necessary modifications. Overview and Procedures of CGT Regime S.NO.Deposit of Physical Securities Inventory AgePrice 1.Physical Securities have been deposited in CDS Between 24th April 2011 to 23rd April 2012 The Date of Acquisition shall be Deemed as 23rd April 2011 Closing Price of 23rd April Physical Securities have been deposited in CDS on or after 24th April 2012 Actual Date of Acquisition as Communicated by CDS. But it should not be Earlier than 23rd April Prevailing Closing Price of the Deposited Date.

10 General Principles for the Determination and Computation of CGT  Types of Transactions Covered under New CGT Regime : Market Based Transactions Non-Market Transactions (CDS security movements)  CGT will be computed based on the transactions and their values taken from the Systems of Stock Exchanges, Central Depository Company of Pakistan Limited and clearing members in case of Foreign Institutional Investors only.  First In First Out (FIFO) Inventory Accounting Method will be used.  Capital Loss in a Financial Year shall be Set Off against Capital Gain of that Financial Year. Overview and Procedures of CGT Regime

11 General Principles for the Determination and Computation of CGT  Capital Loss in a Financial Year Shall NOT be Carried to a Subsequent Financial Year.  Fixed Cost of 0.50% on non-proprietary trades and 0.25% on proprietary trades on Disposal or Acquisition of Securities, in lieu of all Expenses will be Deducted or Added while Computation of CGT.  Financing Cost Incurred through NCCPL’s Leveraged Market Products shall be Taken into Account while Computation of CGT.  CGT shall be Collected on Monthly Basis for Transactions Settled in a Month, after Adjustment of Losses of the Previous Month or Months of the Same Financial Year. Overview and Procedures of CGT Regime

12 General Principles for the Determination and Computation of CGT  CGT shall be Collected From or Through the Respective Clearing Members on Net Capital Gains of Persons/Investors.  Any Person/Investor, if Not Satisfied with the Computation of Capital Gain or Tax thereon, such Person/Investor may Re-Compute the Capital Gain and Lodge Claim of Refund, if any, with the Commissioner of FBR.  The Amount Collected by NCCPL, Shall be Deposited in a Separate Bank Account with National Bank of Pakistan and such amount shall be paid to the FBR alongwith interest accrued thereon on yearly basis by July 31.  In Case of Non-Recovery of CGT, for any reason whatsoever, NCCPL Shall refer a the Case for recovery of CGT to the FBR. Overview and Procedures of CGT Regime

13 General Principles for the Determination and Computation of CGT  Brokerage Account of the Persons/Investors shall NOT be Closed Until and Unless such Persons/Investors Obtains a Clearance Certificate from NCCPL.  Following Certificate / Statement Shall be Provided by NCCPL:  Annual Certificate to each Investor within Thirty Days from the End of a Financial Year.  Quarterly Statement shall be Furnished to FBR within Thirty Days from the End of Each Quarter. Overview and Procedures of CGT Regime

Explanation and Treatment of Market and Non-Market Based Transactions 14

15 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/AcquisitionSale/Disposal Sale & Purchase of Securities Through Trading Systems Inventory Taken Out/In on FIFO Basis on Settlement Date Average Purchase/ Acquisition Price Average Sale Price of the Security Sold CGT Shall be Computed as per Rates in accordance with the Holding Period Squaring up Transactions in Ready, Futures and Derivatives (Day- (Trading) No Impact on Inventory Average Purchase Price Average Sale Price of the Security Sold

16 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/AcquisitionSale/Disposal Sale & Purchase through Negotiated Deal Market (NDM) Inventory Taken Out/In on FIFO Basis on Settlement Date Deal Price or Closing Price at Ready Market whichever is Higher CGT Shall be Computed as per Rates in accordance with the Holding Period Transfer of Securities Owing to Privatization Inventory Move-in the Buyers’ Account and Move-out from Privatization Commission’s (PC)Account. Acquisition PriceNot Recorded for PC. No CGT for Federal or Provincial Government on Transfers.

17 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/AcquisitionSale/Disposal Transfer Owing to Acquisition Inventory Taken In/Out on FIFO Basis. Purchase / Acquisition Price Actual Selling or Negotiated or Quoted Price as the case may CGT Shall be Computed as per Rates in accordance with the Holding Period Buy-back of Shares Inventory Taken In/Out on FIFO Basis Purchase/Acquisitio n Price Price Paid by the Company to Acquire the Shares.

18 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/AcquisitionSale/Disposal Portfolio Transfer – where all UINs are Matching No Impact on the Age of Inventory Age Original Purchase / Acquisition Price N/A Transfer / Transmission upon Death Shares are Transferred to the Beneficiary with the same Date of Acquisition as was in the hands of Deceased Person Original Purchase / Acquisition Price as was in the hands of Deceased Person N/A

19 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/Acquisition Sale/Disposal Transfer for / against GDRs - GDRs are Converted into Shares Acquisition of Inventory Closing Price of the Date of Deposit N/A Transfer for / against GDRs - Deposits into Depository and Get GDRs Inventory Taken Out on FIFO Basis Purchase / Acquisition Price Closing Price of the Date of Transfer CGT Shall be Computed as per Rates in accordance with the Holding Period

20 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/AcquisitionSale / Disposal Reversal of Erroneous Transfers Inventory Taken In / Out on FIFO Basis Closing Price of the Transaction Date N/ANo CGT Gift Transactions Shares are Transferred to the Beneficiary with the same Date of Acquisition as was in the hands of Transferee Cost as was in the hands of Transferee N/ANo CGT

21 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/AcquisitionSale/Disposal Pledge callInventory shall be Taken out from the Defaulter’s Account Average Purchase/ Acquisition Price Closing Price of the Date of the Pledge Call CGT will be Computed as per the Holding Period. Default in Delivery by Seller and Subsequent Squaring-up by NCCPL No Impact on Delivery Defaulter. Inventory Taken Out on FIFO Basis From the Square- up Seller Average Purchase / Acquisition Price Square-up Price

22 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/AcquisitionSale/Disposal Right IssueUpon Exercise of Right or Purchase, Inventory Recorded at the Credit Date Subscription Cost of the Right Shares N/AN/A (However, LoR trading shall be subject to 10%) Bonus Shares Inventory Recorded at the Bonus Credit Date Ex-PriceN/ANA. Offer for Sale Securities are Credited on Acquisition Date Cost of AcquisitionN/A

23 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/AcquisitionSale/Disposal De-Merger Existing Company’s Shareholding is Reduced with the Revised Shareholding. New Shareholding in the New Company With the Same Date of Acquisition of Existing Company Same Cost of Acquisition of the Existing Company N/A Merger No change In Ownership Extinguished Security Replaced with New Security with Merger Ratio Price Adjusted in Accordance with the Merger Ratio N/A

24 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/Acquisitio n Sale/Disposal Specie Dividend Shares will be Added in the Share Holders’ Account at the Date on which Shares are Credited. Zero PriceDeal Price on Issuing Company CGT Shall be Computed for Issuing Company as per Rates in accordance with the Holding Period. Capital Reduction / Splitting of Shares / Conversion Inventory Replaced and Adjusted as per Ratio or Division. Cost of Acquisition of New Shares will Remain Same, as it was for Existing Shares N/A

25 Explanation and Treatment of Market and Non-Market Based Transactions Type of Transactions Impact on Inventory PricingTax Treatment Purchase/Acquisition Sale/Disposal Transfer under Tax- Neutral Court Orders Shares are Transferred to the Beneficiary with the same Date of Acquisition as was in the hands of Transferee Cost as was in the Hands of Transferee N/A Transfer under Taxable Court Orders Shares are Transferred to the Beneficiary with the Date of Transfer Closing Price of the Date of Transfer CGT will be Computed as per the Holding Period.

26 Securities Lending and Borrowing (SLB) Tax treatment  The Net Difference in the Hands of the Borrower resulting in completing the whole transaction. (Difference of the Price of the Sale and Re- Purchase).  Financial Charges incurred on Borrowing the Securities Shall be Taken into Account while Computing CGT.  Tax to be collected at applicable rates on Net Gain  CGT will Not be Applied on the Income of the Lender. Explanation and Treatment of Market and Non-Market Based Transactions

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