Why we should not afraid to CGT…..

roshana7549 · 1 Why we should not afraid to CGT….. Mon Mar 14, 2016 9:50 am

roshana7549

Manager - Equity Analytics

Posts : 186
Equity Stars : 4958
Reputation : 15
Join date : 2011-08-13

How the CGT is calculated?

Capital gain tax is based on the realized capital gain of a particular transaction. Realized capital gain is the Profit made from the buying and selling of a certain share within a particular period.
If we assume Government brings CGT at a rate of 15% and your investment cost is Rs 100,000 and you sell your entire folio for Rs 120,000, therefore your realized gain is Rs 20,000. Thus CGT will be Rs 3,000 (20,000*15%)

Your net gain after CGT will be Rs 17,000 and the total tax paid as a percentage of your total investment is 3% (3000/ 100,000).

My question is why we are so afraid to this CGT if we only pay small proportion (as mentioned above) as Tax.

Therefore there is no basis about market going down to 5000 level as some people and brokers says… .

We should not sell shares at such a low prices by incurring big losses just because of the implementation of CGT (Remember Foreigners are buying at the expense of poor retailers in the last several days). Because the real impact of the CGT does not justify such a down turn in the market.

Positive Side…..

CGT is based on the realized capital gain, therefore we need to have a profit in order to pay this tax. In other words, Government will not collect much, if our Folios are red. You got my point?

Implication – If Government wants to collect good revenue out of CGT, they will have to promote (Creation of right environment in order for the market to go up) the market, more the market goes up higher the Tax revenue from CGT to Government.

Therefore this might work our way …..

In addition to that, there can be possible threshold for CGT (IF implemented) in order to save small retailers…

Therefore just think a bit on the above points before again selling your valuable shares at cheap prices.

The above Points are extracted from an article written by Alchemist (an Expert of another forum) in order to educate investor community.

dilandv · 2 Re: Why we should not afraid to CGT….. Mon Mar 14, 2016 10:11 am

dilandv

Equity Analytic

Posts : 40
Equity Stars : 3528
Reputation : 0
Join date : 2014-10-31

so true ,, such as APLA & ACL..

EquityChamp · 3 Re: Why we should not afraid to CGT….. Mon Mar 14, 2016 10:14 am

EquityChamp

Moderator

Posts : 4068
Equity Stars : 15419
Reputation : 1014
Join date : 2014-11-05

I strongly believe this CGT will just be a proposal but they will end up applying STL again. Also they will enforce anothet special kind of tax similar to SGT for people who earned good capital gains during last 10 years time knowning the charactor of this government very well.

worthiness · 4 Re: Why we should not afraid to CGT….. Mon Mar 14, 2016 10:36 am

worthiness

Senior Vice President - Equity Analytics

Posts : 2577
Equity Stars : 8932
Reputation : 115
Join date : 2011-04-08

Apparently, CGT will extend to all kinds of capital gains in the future such as sale of land, property & other assets. Also, new tax system may allow to offset previous losses arose from such transactions hopefully.

EquityChamp · 5 Re: Why we should not afraid to CGT….. Mon Mar 14, 2016 10:40 am

EquityChamp

Moderator

Posts : 4068
Equity Stars : 15419
Reputation : 1014
Join date : 2014-11-05

worthiness wrote:Apparently, CGT will extend to all kinds of capital gains in the future such as sale of land, property & other assets. Also, new tax system may allow to offset previous losses arose from such transactions hopefully.

I am refering to stock market as it has lot of repurcussions. CGT for land, properties, sentimental items etc is a kind of direct calculation and it dosent require the tax authorities to spend lot of time on calculating. But stock market is tedious for them.

VALUEPICK · 6 Re: Why we should not afraid to CGT….. Mon Mar 14, 2016 12:16 pm

VALUEPICK

Expert

Posts : 3326
Equity Stars : 11283
Reputation : 347
Join date : 2014-02-26

roshana7549 wrote:How the CGT is calculated?

Capital gain tax is based on the realized capital gain of a particular transaction. Realized capital gain is the Profit made from the buying and selling of a certain share within a particular period.
If we assume Government brings CGT at a rate of 15% and your investment cost is Rs 100,000 and you sell your entire folio for Rs 120,000, therefore your realized gain is Rs 20,000. Thus CGT will be Rs 3,000 (20,000*15%)

Your net gain after CGT will be Rs 17,000 and the total tax paid as a percentage of your total investment is 3% (3000/ 100,000).

My question is why we are so afraid to this CGT if we only pay small proportion (as mentioned above) as Tax.

Therefore there is no basis about market going down to 5000 level as some people and brokers says… .

We should not sell shares at such a low prices by incurring big losses just because of the implementation of CGT (Remember Foreigners are buying at the expense of poor retailers in the last several days). Because the real impact of the CGT does not justify such a down turn in the market.

Positive Side…..

CGT is based on the realized capital gain, therefore we need to have a profit in order to pay this tax. In other words, Government will not collect much, if our Folios are red. You got my point?

Implication – If Government wants to collect good revenue out of CGT, they will have to promote (Creation of right environment in order for the market to go up) the market, more the market goes up higher the Tax revenue from CGT to Government.

Therefore this might work our way …..

In addition to that, there can be possible threshold for CGT (IF implemented) in order to save small retailers…

Therefore just think a bit on the above points before again selling your valuable shares at cheap prices.

The above Points are extracted from an article written by Alchemist (an Expert of another forum) in order to educate investor community.

Thank you for the above post.

Different countries have different ways to collect taxes. Some countries are tax heavens. Some countries have implemented CGT for shares and they have excluded it for property. We are going to see property bubble in those countries.

For example in Australia, the amount of tax you pay on your capital gains will depend on a number of things including how long you owned the shares, what your marginal rate of tax is and whether you have also made any capital losses etc. Low income earners have low tax rate.

In addition, the length of time you hold your shares is relevant because individuals can usually discount a capital gain by 50%, meaning you may pay less tax or no tax if you have held the asset for more than 12 months countries like Australia.

It is easy to collect taxes in some countries due to simple process and efficient tax system.

How about reintroduction of share transaction levy which was removed recently?

Government can collect income from almost all types of trading irrespective of traders make profits or losses.

I think it is better to spend some time to study companies and industries that we like to find out some opportunities rather than spending more time on these taxes and some short term issues. Remember essential items are free from VAT.

It is time to screen sectors and groups to find out attractive stocks, emerging companies on the basis of future earnings, higher ROE, cash position and less debt etc. It is also wise to adjust portfolio if we find better investment opportunities. Rotation is another option provided we find out strong companies having great value. It is also better to stay with businesses that we know very well to reap benefits in the mid and long run. It is easy to understated simple business. I believe some simple businesses in Sri-Lanka can give some capital gain, dividends and other returns for number of years.

Finally, current volatility should end sooner than later once short term speculators disappear from some positions.

samaritan · 7 Re: Why we should not afraid to CGT….. Mon Mar 14, 2016 12:49 pm

samaritan

Moderator

Posts : 4125
Equity Stars : 9132
Reputation : 188
Join date : 2015-05-16

EquityChamp wrote:

worthiness wrote:Apparently, CGT will extend to all kinds of capital gains in the future such as sale of land, property & other assets. Also, new tax system may allow to offset previous losses arose from such transactions hopefully.

I am refering to stock market as it has lot of repurcussions. CGT for land, properties, sentimental items etc is a kind of direct calculation and it dosent require the tax authorities to spend lot of time on calculating. But stock market is tedious for them.

Agree with EC. We all are aware of the arithmetic involved in the calculation of CGT for share transactions and also agree that a % of the capital gain has to be paid and furthermore you can set off losses against the gains. But the issue is, it is difficult to administer and collect CGT from share transactions in the first place. The Inland Revenue Dept may have to call for statements of transactions for particular financial year in order to effectively implement this as they cannot depend on voluntary compliance alone. Also, carry forward losses if any in a financial year to the next year etc makes it cumbersome, provided it is allowed in the first place. All these can instill a fear in the minds of the investors for various reasons which i do not wish to elaborate here.(you too have referred to it as repercussions).

On the other hand STL is like the With Holding Tax and deducted on the turnover at the conclusion of transactions which in my opinion is easier to administrate and collect.
It would be wise to do away with the CGT and to reintroduce STL if the Govt feels prudent to do so, given the fact that it is an ailing market. The timing of such imposition of levies or taxes is vital for the sustainable growth of the market.

But sadly what the Govt is expecting is for lame ducks to lay golden eggs!

EquityChamp · 8 Re: Why we should not afraid to CGT….. Mon Mar 14, 2016 10:44 pm

EquityChamp

Moderator

Posts : 4068
Equity Stars : 15419
Reputation : 1014
Join date : 2014-11-05

CGT will be exempted from retail trades below a certain band and also that will be exempted from foreigners
But CGT will apply to other clearly identified areas.
New VAT rates to be effective from Q2 2016
Also new corporate taxes and income taxes will be effective from tax year 2015/16
Several of non essential and non investment graded imports will be taxed at higher rates
Imported items which are substitutes to domestic produce such as floor, sugar, big onions, potatoes, milk powder, etc will be taxed at a higher rates
Oil prices to be stable for 2016 and government will use the profits to build reserves
There will be thorough look at the existing fertilizer subsidy and government will announce certain changes on this area.
And await many more proposals which are aiming to consolidate government finances which are still on the table. We will get to know these in time to come.