KARACHI, June 12: It was difficult for stock brokers and investors at the stock exchange to decide whether what the Finance Minister had offered was a glass half empty or half full. Granted that the much desired exemption on capital gains was extended up to June 2007, but the fly in the ointment was the Capital Value Tax (CVT), which the Government proposes to levy at 0.1 per cent on purchase of shares.

"On the whole the budget is investment and growth oriented and many of the proposals forwarded by us have been accommodated," remarked KSE chairman Arif Habib.

Talking to Dawn, the KSE chairman said that the bourse had proposed that cost of doing business ought to be reduced, which had been partly accepted. Measures such as reduction in electricity charges and cut in duty on import of machinery would help generate new investment in the industrial sector.

He was happy over the government's pledge to continue economic policies and launch second generation reforms. But he was not appreciative of the proposal to levy Capital Value Tax (CVT), which, he said, tantamount to tax on investment. The impact though not immediately calculable, looked to be quite enormous, which could wipe out the benefit of exemption of tax on capital gains, since in the former case, capital losses were also adjustable.

Arif Habib also noted that the budget did not include tax incentives that the bourses had requested to encourage new companies to seek listing and urged for a review in the Finance Bill. Other measures that were detrimental to the stock business was retaining of excise duty on cement that the market was looking forward to; cut in import duty on CBU, which could go to impact profitability of the auto sector and the waiver of withholding tax on 'Bahbood' Certificates.

An analyst said that granting of registration to new Modarabas would help clear the backlog and promote Islamic mode of financing. They also thought it was to be keenly watched if the government can do much for its promise of making the overall tax regime "taxpayer friendly". Paints and varnishes, they thought, constituted a small portion of the construction industry, but other measures such as granting of low interest rate loans for house construction was in the right direction. They said that more had been factored in the current cement stock prices, than was actually announced in the budget.

Mohammad Sohail, head of Research at InvestCap stated that on the positive side was the extension of capital gains tax and the fact that GST had been rationalised from four to a common slab of 15 per cent. But Sohail thought CVT to be a huge dampener for the stock market. He said that given the high volume at the bourse, the CVT at 0.1 per cent would yield Rs10 billion for the government. But on the other hand, it would drive away the short term investors and intra-day traders. That would mean a heavy slump in liquidity and perhaps the turnover: "Some brokers make as little as 3 paisa commission per share, how can they pay 10 paisa in CVT?", he wondered.