July 10: The government has failed to collect the capital gains tax (CGT) as per its expectation due to institutional problems, lapses in monitoring and lack of review on revenue collection. The Inland Revenue Department (IRD) collects CGT on land and house transaction, share transaction and change of ownership of companies. However, the IRD has collected very less amount of taxes under this heading.
CGT is the tax collected from capital gains. The IRD can charge a maximum of 10 percent CGT on land /house transaction above Rs 1 million. Likewise, it can charge 25 to 35 percent CGT on share transaction under certain terms and conditions.
According to the IRD, it has collected a total CGT of Rs 10.19 billion in the first 11 months of the current fiscal year. Last FY, the IRD had collected Rs 8.17 billion in CGT while the amount of CGT collected in FY 2016/17 was Rs 20.76 billion.
However, economists say that the government should have collected over Rs 100 billion in CGT. Even the annual report of the Auditor General has pointed out to the lapses in collection of CGT every year.
The 56th Annual Report of the Auditor General states that the tax collection was adversely affected due to the reluctance in payment of CGT by the responsible parties during land/house transaction.
The report also points out to the need for investigation in the transfer of ownership of 20 companies. It is estimated that the companies need to pay Rs 200 million in CGT.
According to Deputy Auditor General Bamdev Sharma, the government is facing losses as the cost of transaction of lands and houses shown in paper is very little compared to the actual transaction that takes place.
“The concerned government agency should also give proper attention in collecting CGT from share transaction,” he added.