Capital Gains Taxation in Pakistan
In Pakistan, the taxation of capital gains is governed by the Income Tax Ordinance, 2001 (ITO). Capital gains are defined as the profit or gain derived from the sale, exchange, or transfer of a capital asset. Capital assets include immovable property, shares, and other securities.
The calculation of taxable capital gains involves determining the difference between the sale proceeds and the cost of acquisition of the asset. The cost of acquisition includes the purchase price, any expenses incurred in acquiring the asset, and any improvements made to the asset.
The tax rates applicable to capital gains vary depending on the nature of the asset and the holding period. For immovable property, the tax rate is 15% if the property is held for less than two years and 10% if the property is held for two years or more. For shares and other securities, the tax rate is 15% if the securities are held for less than one year and 10% if the securities are held for one year or more.
The ITO provides certain exemptions and deductions in the calculation of capital gains. These include:
- Exemption for the sale of a principal residence
- Deduction for expenses incurred in the sale of the asset
- Deduction for losses incurred on the sale of other capital assets
The legal framework governing the taxation of capital gains in Pakistan aims to ensure that individuals and businesses contribute their fair share of tax on profits realized from the sale or disposal of capital assets. The tax rates and exemptions are designed to balance the need for revenue generation with the promotion of investment and economic growth.
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