PSX has been a rewarding way to grow wealth for many. However, nothing good comes without some sacrifice. In this case, we are talking about the inevitable Capital Gains Tax (CGT). We have observed that CGT seems intimidating to a lot of people but a key point to note is that CGT is paid on your profits only. You still come out as a winner in the end. Let us break down the nuances of CGT in detail for you.
Key Takeaways:
- CGT is a tax on profits from selling assets like shares.
- NCCPL is the brains behind the operation that guarantees settlements and computes and collects CGT using data from PSX, as well as from the CDC, AMCs, and PMEX.
- CGT rate is inversely linked to holding period as per latest structure; the detailed structure is provided later for your understanding.
- It’s not all gloom — losses can offset gains, and refunds are automatic if overpaid.
Understanding Capital Gains Tax
Suppose you purchase shares of a high-performing technology company for PKR 100/share and then sell them for PKR 150/share. The resulting PKR 50 profit from that sale would be subject to capital gains tax.
The topic remains a source of confusion for many, who wonder:
- What tax rates are applicable?
- Is it deducted per trade or monthly?
- Which costing method is used for computation of CGT?
Purchase date and tax-filing status determine CGT rate
Rates at which CGT is deducted depend on acquisition date, holding period, and filer status. Starting July 2025, most investors will face a flat 15% rate, creating a more level playing field.
Here’s the scoop for tax year 2026:
Holding Period | ATL Filers | Non-ATL |
Pre-July 1, 2013 | 0% | 0% |
July 1, 2013–June 30, 2022 | 12.5% | 25% |
July 1, 2022–June 30, 2024 (1–2 years) | 12.5% | 25% |
… (2–3 years) | 10% | 20% |
… (3–4 years) | 7.5% | 15% |
… (4–5 years) | 5% | 10% |
… (5–6 years) | 2.5% | 5% |
Holding Period Exceeds 6 years | 0% | 0% |
July 1, 2024–June 30, 2025 | 15% | 30% |
July 1, 2025 onward | 15% | 15% |
NCCPL regularly updates any changes to the CGT rates on its website. Investors can follow https://www.nccpl.com.pk/cgt to stay updated.
CGT is collected monthly by NCCPL
The National Clearing Company of Pakistan Limited (NCCPL) acts as a behind-the-scenes calculator, tracking investors’ trading transactions, and billing individuals monthly. The NCCPL shares CGT liabilities on a monthly basis (for prior month) with brokers for their clients. The brokers are then required to deduct cash from their clients’ accounts and submit to NCCPL. In case an investor fails to provide cash for CGT, the broker is required to submit his/her details to the NCCPL which in turn blocks their UIN for further buying.
CGT is worked on FIFO costing
The calculations are based on the FIFO (first-in, first-out) method of costing. For example, you bought 100 shares at a cost of PKR 200/share and then bought 100 shares again at a cost of PKR 170/share, taking your average cost to PKR 185. Now assuming you sell 50 shares at PKR 225, your CGT liability shall be calculated on PKR 25 gain (PKR 225 – PKR 200) under the FIFO approach.
Losses can help lower liabilities in the same year
Losses can be offset against gains in the same year or carried forward for up to three years if you are on the Active Taxpayer List. Losses can offset gains, allowing the CGT to be adjusted or even refunded. For example, if you booked a profit of PKR 50,000 and CGT was deducted, but later you incur a loss of PKR 20,000, you’ll only end up paying CGT on the net gain of PKR 30,000. This ensures that you are taxed fairly and only on the gains that actually stick. Refunds are automatic in such cases.
Take the Next Step
Taxation is a reality of life. The good part is that CGT only applies to profits on PSX trades. While a new investor (tax-filer) pays 15% on the amount of profit, the remaining 85% remains with him/her. Hence, CGT should be the least of your concerns as long as you are making cash available in your account on the deduction date!