If you are a Pakistani investor or business owner, understanding capital gains tax is essential. Capital gains tax is a tax imposed on the profits earned from the disposal of capital assets. In this article, we will explain the concept of capital gains tax, how it is calculated, and how to pay taxes on capital gains.
What are Capital Assets?
Section 37(5) of the Ordinance defines a capital asset as “property of any kind held by a person, whether or not connected with a business.” However, there are specific exclusions:
- Business Assets: Stock-in-trade, consumable stores, and raw materials used for business purposes are not considered capital assets.
- Depreciable Assets: Property for which depreciation is claimed under Section 22 or amortization under Section 24 is excluded.
- Personal Property: Movable property used by an individual or their family dependents is generally exempt, with some exceptions.
Goldis specifically categorized as a taxable asset. This is due to its inclusion in the list of assets subject to capital gains tax. Section 37(5)(d) specifically exclude assets listed in Section 38(5) from immovable assets held for personal use.
Capital Gains Tax Rates
The government has implemented significant changes to capital gains tax (CGT) in the Finance Act 2024, impacting both immovable property and securities. Here’s a breakdown:
Immovable Property (Land & Buildings)
A simplified system proposes a flat 15% tax rate on capital gains from immovable property acquired on or after July 1, 2024, for individuals listed on the Active Taxpayers List (ATL) at the time of disposal. Holding period will no longer be a factor.
While local Pakistanis generally face this 15% Capital Gains Tax on property profits, overseas Pakistanis can potentially achieve a 0% rate. However, this isn’t automatic. To qualify for this exemption, you must meet three key conditions.
Properties acquired before July 1, 2024, will continue to be taxed under the existing regime, with varying rates based on holding period and property type.
| Holding Period (Year) | Open Plots | Constructed Property | Flats |
| ≤ 1 | 15% | 15% | 15% |
| 1 – 2 | 12.50% | 10% | 7.50% |
| 2 – 3 | 10% | 7.50% | 0 |
| 3 – 4 | 7.50% | 5% | – |
| 4 – 5 | 5% | 0 | – |
| 5 – 6 | 2.50% | – | – |
| 6+ | 0% | – | – |
Securities (Stocks & Shares)
Where the securities are acquired before the first day of July, 2013 It will be exempt. However,
- Where the securities are acquired on or after the first day of July, 2013 but on or before the 30th day of June, 2022 12.5% for Filers and .
- Where the securities are acquired on or after the first day of July, 2024 and onwards Filers Ind/AOPs/Company 15% & Non Filers Business Slab rates apply, but not less than 15%.Companies not appearing on ATL will be charged. at 29%unless small company.
- Where the securities are acquired on or after the first day of July, 2022 but on or before the 30th day of June, 2024, below reduced rates of tax on capital gain arising on disposal shall apply:
| Status | Tax Rates |
| Holding Period | Reduced Tax Rate (%) |
| Where the holding period does not exceed one year | 15 |
| Not exceed two years | 12.5 |
| Where the holding period exceeds two years but does not exceed three years | 10 |
| Where the holding period exceeds three years but does not exceed four years | 7.5 |
| Where the holding period exceeds four years but does not exceed five years | 5 |
| Where the holding period exceeds five years but does not exceed six years | 2.5 |
| Where the holding period exceeds six years | 0 |
Pre-2013 Acquisitions Exempt: Securities acquired before July 1, 2013, remain exempt from capital gains tax.
Capital Gains on Sale of Gold
Despite the clear provisions of the Income Tax Ordinance, the Federal Board of Revenue (FBR) Helpline is reportedly providing incorrect information regarding the taxation of capital gains on gold to taxpayers. Many taxpayers are being misled into believing that capital gains from the sale of gold are not subject to income tax.
Tax Rates of Capital Gains on Gold
The tax rate applicable to capital gains on gold aren’t mentioned separately in Income Tax Ordinance. Gains on Sale of Gold will be added to your remaining income and will be taxed at following rates effective from July 1, 2024 till June 30, 2025.
| Total Income (PKR) | Tax Rates(PKR) |
|---|---|
| Up to 600,000 | 0 |
| 600,001 – 1,200,000 | 15% |
| 1,200,001 – 1,600,000 | 90,000+20.0% |
| 1,600,001 – 3,200,000 | 170,000+30.0% |
| 3,200,001 – 5,600,000 | 650,000+40.0% |
| 5,600,001 & Above | 1,610,000+45.0% |
Capital Gains Tax Calculations
Capital gains are calculated by subtracting the cost of the asset from its selling price. The cost of the asset includes the purchase price and any expenses related to the acquisition of the asset, such as legal fees, registration fees, and transfer fees.
However, if an asset was received as a gift, bequest, will, succession, inheritance, or distribution of assets on the dissolution of an association of persons (AOP) or liquidation of a company, its cost will be equivalent to the fair market value at the time of disposal.
How to Pay Capital Gain Tax?
If you have earned a capital gain, you are required to file a tax return with the Federal Board of Revenue (FBR) and pay taxes on the gain. You can do this either online or by visiting the nearest tax office.
To file a tax return, you need to provide details of the asset, such as its purchase price, selling price, holding period, and any expenses related to the acquisition of the asset. You also need to calculate the capital gain tax payable and pay it online or by submitting a payment at the bank.
What You Need to Do:
- Stay Informed: Investors are advised to closely monitor the finalization of these proposals and seek professional advice to understand the potential impact on their investment strategies.
- Review Acquisitions: Identify the acquisition dates of your immovable property and securities to determine which tax regime applies.
- ATL Status: If you’re not already on the ATL, consider registering for potential tax benefits on future capital gains from securities.
Conclusion
Capital gains tax is an essential aspect of investing and doing business in Pakistan. By understanding the concept of capital gains tax and how to calculate and pay it, you can avoid penalties and ensure compliance with tax laws. Remember to file your tax return and pay your taxes on time to avoid any legal issues.
Who will pay gain tax purchaser or sailer
If the purchaser or seller is filer but status showing late filler how much % is to be paid in the account of Gain tax.
Who has the Gain income will be paying the tax
What about the gain on gold?
Is this also subject to indexation like immovable property.
Taxed under normal income slabs.
A residential house of 120 sq yard was in the name of my father since more than 30 to 40 years. My father passed away in 2014. Now me and my brothers want to sell the house to get their share. I want to ask that how much will be the gain tax on this property.
None.
Capital Gain tax is not applicable on sale of Inherited property.