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.
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.