Tax practitioners have proposed the government to allow capital gain tax (CGT) exemption to private companies in order to encourage corporatisation in the country. The Karachi Tax Bar Association (KTBA) in its proposals for budget 2021-22, pointed out that as per section 37, gain on sale of shares of private companies is taxed at corporate tax rate. “This gain is reduced by 25 percent in case the holding period is more than one year,” the tax bar said. In case of gain on disposal of immovable property, the gain is exempt in case the holding period is more than 4 years. In case of capital gain on securities under section 37A, the gain is exempt on securities acquired before 1 July 2012. “Hence, investment in shares of private companies stands at comparative disadvantage,” the KTBA added. It is proposed that the gain on sale of private company shares should also be allowed exemption in case if the holding period is 10 years or more. The proposal has been submitted in order to encourage and benefit corporatisation of business. The tax bar also highlighted that as per definition of dividend the distribution made by a company to its shareholders on reduction of capital shall be deemed dividend. This situation is generally referred to as buy-back of shares. On the other hand, under Rule 13P of the Income Tax Rules, 2002, the shares buy-back transaction is treated as capital gains. Thus, there exists a contradiction among the provisions of Ordinance and Rules. Similarly, the KTBA urged the Federal Board of Revenue (FBR) that rental income from property and individuals or Association of Persons (AOPs) should be taxed as full and final discharge of tax liability. The association said that the rental income from property, AOP or individual and company (taxable as separate block of income) should be taxed at a uniform rate of 15 percent of the gross rent as full and final discharge of tax liability. The tax bar said that at present for every person except companies the income from property is chargeable to tax at the rate specified in Division (VIA) of Part-I of the First Schedule, which is considered to be their final tax liability and they are not allowed any expenditure against gross rent, except option provided under sub-section (7) of section 15A of the Income Tax Ordinance, 2001. The companies are required to pay normal tax (currently at 29 percent) on such income after adjustment of admissible expenditure out of gross rent. The tax rate on rental income has been gradually increased from 20 percent to 35 percent for individuals and AOPs vide the Finance Act, 2019. Apart from that the lessor is also required to pay Sindh Sales Tax at 3 percent to SRB. It makes the total tax impact very unfair and exorbitant.