PAKISTAN

Taxation: Capital Gains Tax and Interest Withholding Measures Effective July 1, 2010

Effective July 1, 2010, upon the approval by the National Assembly, the new capital
gains tax (CGT) regime entered into force. The CGT applies to gains realized by
investors from dispositions of listed securities occurring on or after June 30, 2010. Gains
derived from Pakistani listed securities purchased by investors prior to July 1, 2010 are
also subject to the new CGT regime and the applicable tax rate is determined based on
the investor's holding period, as explained in further detail in the following paragraphs.

Treatment of Listed Securities

The application of CGT varies depending on the holding period of the security. Gains
from above-mentioned listed securities held for a period of more than 12 months will be
charged to tax at 0%. Gains from listed securities held for a period of less than 12
months held by persons other than banking companies, are subject to CGT at progressive
tax rates as follows:

The rate of tax to be paid under section 37A shall be as follows:

S.No. Period. Tax Year. Rate of tax.

(1) (2) (3) (4)
1. Where holding 2011 10%
period of a 2012 10%
security is less 2013 12.5%
than six 2014 15%
months. 2015 17.5%
2. Where holding 2011 7.5%
period of a 2012 8%
security is 2013 8.5%
more than six 2014 9%
months but 2015 9.5%
less than 2016 10%
twelve
months.
3. Where holding -- 0%
period of a
security is
more than one
year

Provided that a mutual fund or a collective investment scheme shall deduct Capital Gains
Tax at the rates as specified above, on redemption of securities as prescribed
Pakistani law defines the term "securities" to include the following instruments:

a. Shares of public companies listed on any stock exchange in Pakistan;

b. Shares of a company where 50 percent or more of the outstanding shares are held by
the Government;
c. Units of a unit trust (i.e., collective investment schemes) publicly held in Pakistan;
d. Vouchers of Pakistan Telecommunication Corporation,
e. Modaraba Certificates (issued by certain Islamic forms of business) and
f. Instruments of redeemable capital (i.e., Term Finance Certificates, Participation Term
Certificates and certain Islamic based financing certificates.)

“Holding period” of securities shall be calculated from the date of acquisition (whether
before or after the thirtieth day of June 2010) to the date of disposal of such security
falling after June 30, 2010.

Losses on disposal of securities in a tax year shall be adjustable only against the gain
from disposal of any other securities and such loss shall not be carried forward to a
subsequent tax year.

Pakistan has an extensive double taxation avoidance treaty (DTAT) network and many of
its DTATs provide for a CGT exemption for qualifying investors. However, an
application is required to be filed before the Commissioner Inland Revenue for the
purpose of obtaining exemption with respect to non-withholding of tax at the time of
remittance of sale proceeds to the non-resident investor.

Quarterly Advance Tax Payment Procedure

The new quarterly advance tax payment procedure requires the advance payments of
CGT made by nonresident investors on the 7th day after the close of each quarter. For
securities held for less than 6 months, the advance tax payment would be 2 percent of the
gain and for securities held for 6 months to 1 year, the advance tax payment would be 1.5
percent of the gain for the quarter. Investors will now be required to pay the advance tax
on a quarterly basis in addition to filing the annual declaration. Where no gains were
derived by an investor during a quarter, no advance tax payment is due. Local tax
advisors can assist clients with the remittance of the quarterly advance tax payments and
filing the annual tax declaration. The details of the advance tax payment procedure are
expected to be finalized shortly.

The draft CGT rules which have been circulated by the tax authorities require the
determination of date of acquisition of the securities on FIFO basis. Offsetting of capital
losses is permitted against capital gains derived from the same category of securities. For
example, losses derived from sales of securities held for less than 6 months can only be
offset against gain derived from securities held for the same period.
Debt Instruments and Unlisted Securities

Interest from all debt instruments, including Treasury Bills and Pakistan Investment
Bonds will be subject to a withholding tax at the rate of 10 percent. Currently, interest is
subject to a 10 percent withholding tax and a 35 percent final withholding tax, unless an
applicable DTAT provides for a reduced rate, which is considered the final tax rate.

Pakistan's DTATs currently in force do not provide for tax rates on interest income that
are lower than the current statutory rate of 10 percent. Thus, for most foreign investors,
the final withholding tax on interest income would be 10 percent. Where a DTAT does
not provide for a reduced rate of tax, the residual 25 percent corporate tax will be due at
the time of the annual tax declaration filing.

Debt instruments are not within the scope of the new CGT provisions and are subject to
the same tax treatment as unlisted securities. Thus, unlisted securities and debt
instruments will continue to be subject to tax at the rate of 35percent on short-term gains
(where the holding period is less than 12 months) and 26.25 percent on long-term gains
(where the holding period is more than 12 months).

Investors must engage a local tax advisor for assistance with quarterly and annual tax
filing. Local custodians will provide the necessary trade details to the investor's locally
appointed tax advisor for the CGT calculation.

The local tax advisors' services include obtaining the local tax identification (National
Tax Number), determining clients' CGT liability, making quarterly advance tax payments
and filing the annual tax declaration.

Impact to Investors: Investors are subject to capital gains tax on Pakistan securities held
for a period of less than 12 months and new quarterly advance tax payments procedure.
The new capital gains tax applies to gains derived from transactions settled on or after
June 30, 2010.

Required Action: Investors should engage services of a local tax advisor for assistance
with the remittance of quarterly advance payments and filing the annual tax declaration.