KARACHI - The Karachi Stock Exchange has informed its members that the newly-constituted Taxation Committee of KSE is holding discussions with the authorities of the Federal Board of Revenues (FBR) on the rules and modalities related to computation of Capital Gains Tax (CGT). According to a KSE notice issued Monday, the CGT rules were under review by the Ministry concerned at the time when the KSE was in discussions with the FBR over the matter. The KSE has also given assurance to its members that the said Committee would properly address each members concerns about the issue with the FBR officials. It must be mentioned here that the FBR had issued a SRO No 112(1) 2011 on Feb 11, 2011 for the rules and regulations of the Capital Gain Tax (CGT). According to the key highlights of the SRO, FIFO will be the accounting method used to calculate CGT. Capital gain is applicable on purchase, exchange, bonus issue, rights issue, gifts, bequest, inheritance, leverage schemes and derivatives contracts. Off market transactions will also fall under the ambit of CGT. CGT on short sales shall be for the period between the dates when the security was short and when the security was purchased to cover the short position. In case of futures contracts, holding period will be between the date of entry into a futures contract and the date of exit from such contract. Wash sales: Capital loss adjustment shall not be allowed if a specific security is repurchased within one month period, thus maintaining the portfolio. Cross trades: Capital loss adjustment shall not be allowed if traded between two related accounts of the same investor, between two related accounts of the related investors, between two membership cards of the same broker or between two related brokerage houses to artificially realize capital losses in one account without actually selling the securities to an outsider. Tax swap sales: Capital loss adjustment shall not be allowed if a security from the same sector (related scrips) is bought to maintain the same risk return profile. We believe, similar to wash sales, one month time period should be applicable on this as well. Fortnightly ledger statements and CDC statements, record of security holding and cash carried as of June 30th, and record of funds deposited and withdrawn should be maintained. Investor will be required to obtain a tax clearance certificate before closing his/her account. If a broker closes the account without the certificate, it shall be liable for the investors tax liability.