17/04/2024
https://profit.pakistantoday.com.pk/2023/03/19/calling-a-spade-a-spade-is-capital-value-tax-the-new-wealth-tax/
Since it is not levied upon the transfer of asset, rather it is being levied upon the mere holding of that asset, it could better be characterised as a wealth tax. However, while talking to Profit, Adjunct Faculty Member LUMS and tax law expert, Dr Ikramul Haq stated that it could be better understood as a tax on the “notional gains”.
“It is quite absurd, the manner in which this tax is imposed. Since the element of cost is missing it cannot even be categorised as a wealth tax, and similarly no transfer is being made, hence, CVT isn’t fit either,” said Ikram.
The level of public debate in Pakistan is such that even if the government imposes an outright wealth tax, the majority would not have opposed it. However, the current regulations are nothing if not a comment on competence and policy homogeneity.
On the other hand, even if the federal government claims jurisdiction over overseas assets, there is another alarming detail in the Finance Act 2022. In the section 8, subsection 3, part c (1), the Finance Act states that, “the value shall be – (i) the total cost of the foreign assets on the last day of the tax year, in relevant foreign currency converted into rupees as per exchange rates notified by State Bank of Pakistan for the said day.”
Explaining this act, Haq said, “Imagine if you bought a property for 100 pounds, 10 years ago and the property’s value did not grow in the UK market. The value of that property in PKR terms still grows more than twice in PKR terms, considering the fall in exchange rate. The government is asking for a tax on the PKR value of that same property. You as an investor did not have anything to do with the exchange rate fall, why should you be paying the price?”
“When we look at this it seems as if it is neither CVT nor wealth tax, rather it looks as if the government is trying to tax the notional gains of people.” he added.
In the hot haste of collecting more taxes, did the government do a mix up?
