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Gains tax on property deals, stocks proposed

Discussion in 'Pakistan Economy' started by Cheetah786, Feb 8, 2007.

  1. Cheetah786

    Cheetah786 PDF VETERAN

    Aug 23, 2006
    +1 / 7,272 / -4
    ISLAMABAD (February 08 2007): The Planning Commission has recommended imposition of capital gains tax on stocks transaction and real estate deals to discourage speculative and non-productive investment, official sources told Business Recorder here on Wednesday.

    This is part of a new 'export strategy' drafted by Planning Commission Deputy Chairman Dr Akram Sheikh, without involvement of Planning Division Secretary, to be considered at a meeting under the chairmanship of Prime Minister Shaukat Aziz. The date of the meeting has not yet been finalised, sources added.

    They said that the Planning Commission has also proposed to the government to follow 'Malaysian model' for attracting investment in productive sectors. "Discourage investment in non-productive and speculative activities by levying capital gains tax on real estate and stock transactions," sources quoted Planning Commission as having recommended to provide an enabling business environment.

    The Commission said that it was satisfied with the present pace of Foreign Direct Investment (FDI), but suggested that concentration should be shifted from telecom, financial and oil and gas sectors to export-oriented manufacturing sector

    Investment in the productive sectors should be encouraged through policy support and effective incentives regime by allowing tax breaks and credit for human resource development, technology upgradation or transfer, investment allowances, support of registration of patents, trademarks and product licensing abroad, the planning Commission said, according to sources.

    It has also been proposed that incentives scheme should be launched for promotion/acquiring of brand names for which concerned ministries should be asked to prepare industry-specific policy support and incentive regimes, in consultation with Central Board of Revenue (CBR).

    The 'Malaysian model' includes medium to high tech activities relating to electronics, scientific and medical, biotech, electro-optic, automation, advanced materials, manufacturing of textile, quarrying, agriculture and material handling machinery. Activities generating more industrial linkages may include rubber, plastic, iron, steel, textile, metal casting, machine transport equipment and accessories.

    It has also been suggested that Sialkot, including airport, be declared as 'export city', as 90 percent of its output is being exported. The Commission, in its report also discussed the negative impact of political demonstrations on business activities, which caused loss of billions to the country.

    "Political demonstrations may only be allowed in the designated areas and, for this purpose, necessary amendments be made in the rules and laws in the light of those prevailing in other countries, like UK," sources quoted the Commission as saying.
    The Commission is also of the view that visa processing in Pakistan's embassies is cumbersome and expensive besides payment of $100 as visa fee. It has recommended that Turkish visa system should be adopted so that citizens from the designated countries be eligible for visa on arrival.

    It has been recommended that simple printed visa stamp on payment of $20 be affixed on the passport. The PC has also suggested raise in skill base and competitiveness, revamping of existing physical infrastructure, establishment of new industrial estates/export cities, and industrial parks along the national corridors.
    finally some one with brains.its about bloody time they realize the right path.love it love it love it excellent this is exactly what we need to do
  2. sigatoka

    sigatoka SENIOR MEMBER

    Oct 29, 2005
    +0 / 29 / -0
    Long time no see everybody, but i wont be posting that much this year as will be busy studying(hopefully).

    1. Anyways I strongly agree that Pakistan needs Capital gains tax especially in relation to Real Estate (I dont actually agree with the capital gains tax on shares and so forth).

    2. I also strongly disagree that the reason for capital gains tax should be to prevent "speculative and non-productive investment" firstly because the government has never been better than the private sector in recognising areas of the economy where there is overinvestment.

    3. This is a terrible idea not becasue the idea is terrible per se but becasue when the government committs to actively providing subsidies to certain sectors (which is what "breaks" are) by taxing other sectors (usually more productive sectors of the economy) it results in lobbying galore by special interest groups. In fact ADB has in relation to a certain country mentioned that if all the tax breaks were removed and the general taxation level lowered that the gains due to reduction in distortionary activity and corruption would be far greater than any losses due to reduction positive externalities that were generated in certain sectors.

    4. Malaysia's model specifically (and Asian tigers including Indonesia's generally) have been successful due to a small part in that they have targetted certain industries that are subject to increasing returns to scale and improving terms of trade (such as electronics) but a far greater reason for their success has been due to the fact that these nations have invested brutally in eduction especially primary and secondary education and export enabling infrastructure development such as roads, ports, electricity distribution grids, water grids, efficient water supply and so forth. In fact targetting certain industries with breaks like electronics sector without laying the base with investment in eduction, roads....and so forth is going to result in a very expensive failure.

    5. Silly little gimmicks like naming cities "export" cities are not going to change the fact that Pakistan's government continues to maintain an outrageously restrictive trade environment for its citizens. If Pakistan is serious about creating an "export" nation rather than an export city, it should committ to reducing all quotas over a period of 3 years converting them to equivalent tarriffs and committing to reducing all tarriffs to at least 30% within 4-5 years and then committing to reduce it by 5% a year. Removing restrictions on imports boosts exports due to the Lerner symmetry which is due to exchange rate and transfer of productive entities from export to import substituing industries and also the fact that now days multinational companies engage in vertical integration and if a nation restricts imports it prevents companies from using the nation as a manufacturing base.