KARACHI, June 7: The budget has created an enabling environment for financial sector to stabilize — and even grow as the economy takes a turn for the better.

National Bank president Syed Ali Raza says: “The banking sector is an intermediary sector. If the overall economy grows banks will also grow.”

Citing the incentives provided under the present budget to key sectors like construction, he said these would lead to growth in many sectors of the economy “and that would mean more business for the banks.” He said the lowering of income and sales tax in certain cases and abolition of wealth tax act would create an enabling environment for trade and industry to do more business. Mr Raza also said that the measures taken in the budget for attracting investment are commendable.

“All this put together would allow banks to employ the surplus liquidity they have with them more efficiently and survive and grow,” Mr Raza said while talking to Dawn, adding that a three per cent cut in income tax on banks would supplement this.

“Probably this is as good a budget as was possible under the present circumstances,” he remarked. Mr Raza said higher allocations for social sector spending amidst unchanged allocation for the defence spending had sent a positive signal to the local and foreign investors.

But FPCCI vice-president Haroon-ur-Rashid laments that the budget does not offer specific incentives to foreign investors. “They have been treated at par with the local investors,” he said while talking to Dawn. He said the budget also does not offer any substantial incentive for the corporate sector — except for a three per cent reduction in income tax on banks. Haroon-ur-Rashid was also critical of the move to cut the import duty by 50 per cent on import of cars above 1,800cc saying this would not offer any relief to the common man.

“The auto makers would continue to enjoy monopoly and there would be no check on prices.”

But the FPCCI vice-president was all praise for the increase in social spending and the measures announced for attracting investment and creating an enabling environment for the trade and industry. “This is an investment-oriented and business-friendly budget,” he remarked. He said that the depreciation allowance permitted on import of second-hand machinery would help textile sector prepare themselves to meet the challenges of the post- quota regime from January 2005.

Many textile factories in the US and the Europe are closing down and they would be out to sell second-hand machinery “so the move is well-timed,” he observed.

He also appreciated the incentive packages offered for Gwadar that has been declared special economic zone but hastened to add that this might create a sense of deprivation in other three provinces. Mr Haroon said the abolition of wealth tax act was a very welcome move and special focus on the revival of construction industry would lead to overall growth of economy.

Pakistan Banks Association chairman Zubyr Soomro said in a statement faxed to Dawn that the budget aimed at promoting housing sector increasing tax credits by five-fold to Rs500,000, reducing central excise duty on cement by 25 per cent and introducing government guarantee programme for housing finance availed by government employees. “These incentives would jump-start the housing sector and lead to increase in mortgage credit appetite for banks.”

He further said the government’s success in reducing the debt burden and increasing the revenues had served to create fiscal space. He said the reduction in taxes for corporates and banks is in line with the government’s committed reductions.

Former chairman of Leasing Association of Pakistan and chief executive of National Development Leasing Corporation, Mubashir A. Akhtar appreciated the move to declare lease rentals as tax deductible. Talking to Dawn from Lahore he said this would help the leasing industry grow. Mr Mubashir said since the budget was aimed at achieving growth in many sectors of the economy it would create more business for leasing sector as well and “make them better-positioned to serve SMEs (small and medium enterprises).

Leasing Association of Pakistan chairman Javed A. Calea said that with the lease rentals declared as tax deductible and with initial depreciation allowed on the import of second-hand machinery the leasing sector was set to gain direct benefits.

He said that budget incentives for the construction industry and special allocations for micro financing would help the financial sector, including the leasing companies, to grow. Terming the budget investment-friendly, he said this would lead to asset formation and “leasing sector too will find more business to do.” He said the budget would help the financial sector stabilize.

Former chairman of Modarabas Association of Pakistan Basheer A. Chowdry too was also appreciative of the measures taken to benefit the overall economy, including the financial sector. But he pointed out that the insurance companies should have been provided capital gain exemption.

He was of the view that the government should also have given tax exemption on insurance premiums up to a certain limit to encourage this business. “This is where the budget is lacking in benefiting the financial sector,” he said. But he appreciated the move to increase the limit for contribution towards annuity scheme of insurance companies.

At present individual taxpayers are entitled to tax credit against contribution to such a scheme up to Rs100,000 or 10 per cent of taxable income. The budget 2003-04 has raised this limit to Rs200,000 or 10 per cent of the income — whichever is less.

Mr Basheer also noted with concern that the budget does not provide any direct incentive to foreign investors nor does it offer any concession to the salaried class. He also lamented that whereas tax cuts have been made in case of banking companies and private limited, the public limited companies have been ignored. “They should also have been provided a proportional tax cut,” he observed referring to three per cent cut in tax on banks and two per cent cut in tax on private limited companies.

Former president of FPCCI Lateef Jamal has termed the budget as business-friendly and said that it would go a long way in promoting investment in the country.