KARACHI, July 21: The levy of 0.1 per cent stamp duty on transfer of electronic shares decreed in Sindh Finance Bill has set the stock market pundits on arguing over its impact, which range as widely as between Rs20 million to Rs1,250 million.

Rumours of the levy were already making the rounds on Thursday. The 0.1pc stamp duty would be imposed on the face value of a share, which — since most shares are of Rs10 par value — would amount to one paisa per share.

On Thursday, the market thought that the stamp duty would be at 10 paisa per share, which would surely have been painfully high.

A meeting of participants including representatives of the stock exchanges and Central Depository Company (CDC) with the members of the Board of Revenue on Friday came up with the clarification that the stamp duty would indeed be at 0.1pc and not 1pc.

That brought signs of relief for some major participants, though others thought it as a retrogressive step, which would increase the ‘cost of doing business’.

The duty since levied vide the Sindh Finance Bill would only be decreed on companies with their registered offices in Sindh (Karachi). The market protests were quieten by Adviser to the Sindh Chief Minister on Finance M.A. Jalil, who argued that it was nothing new, but just an implementation of the old levy. “The Sindh Fiannce Bill has been passed, the governor has signed it and the stamp duty on electronic transfers, through the CDC, would be applicable with immediate effect,” he declared.

Most market participants, who now leafed through the Sindh Finance Bill agreed that the stamp duty was indeed present in the bill, but it was either in fine print or the market had simply overlooked it.

Hanif Jhakura, chairman CDC, said it was not possible to quantify at this point in time the amount that the CDC would collect on behalf of the Sindh government under the stamp duty. But others were more vocal. Ex-chairman KSE Arif Habib thought the tax to be ‘very much negative’ and that it would amount to loading more on the cost of transactions. He stressed that other indirect ways should be looked into revenue generation.

Abid Ali Habib, sitting director on the Board of Karachi Stock Exchange, said that the levy of stamp duty tantamount to encouraging speculation and discouraging genuine investment in stocks. A veteran of the market explained that stamp duty was levied before the advent of the CDC on the physical transfer of shares, but since most investors would transfer shares in their names only at the time of dividend declaration, there was a bearable one time impact. The law now asks that each transaction that passes through CDC would have to cede the 0.1pc stamp duty, which meant that except the intra-day trading, all other transactions would be burdened by the levy.

Aggrieved parties contended that already, the stocks were subjected to several costs including the 0.2pc Capital Value Tax (CVT) — doubled in the recent budget from 0.1pc last year — and now a new party (Government of Sindh) had entered the market to ‘kill the goose that lays the golden eggs’.

But a major stock broker, Aqeel Karim Dhedhi disagreed that the levy was something on which the participants should make such hue and cry. He figured out that since only 10pc of the daily transactions of around 250 million shares went through settlement, a one paisa daily impact would be of Rs2.5m; a month’s impact based on working days, would amount to Rs5 million and a whole year’s Rs60 million, of which companies with head office in Sindh, who would be subjected to levy would have to bear extra cost of just about Rs20 million. He asked: “What is that against CVT in which big brokerage houses pay as much as Rs200 million each”. He thought all the noise and fury was to depress the market.

But chairman Mutual Fund Association of Pakistan, Najam Ali expressed his serious reservations at the levy and observed that stamp duty has always been on the transfer of physical instruments such as a physical share certificate or a trust deed as the stamp duty regime is essentially based on the physical instrument. On the other hand, electronic transfers through CDC were not subject to such a levy as the mode of transfer is purely in electronic book-entry form to facilitate the investors in the capital market in line with international best practices.

He said that there was no precedent worldwide of any such charges or levies applicable to electronic book-entry transactions. On the contrary, India has exempted the transactions in dematerialised form from all types of government and provincial taxes, levies and charges to facilitate growth of the capital markets.Under the CVT, last year, the government had collected Rs3.5 billion against the target of Rs2.9 billion; target this year was Rs3 billion. A senior broker observed that for the year ended June 30, 2006, CDC had collected transaction fees amounting to Rs250 million at the rate of one-fifth of one paisa. If that were to be taken as a basis, he thought that the stamp duty could jump up to as much as Rs1 billion.

But a consensus view that could be generated after interviewing several participants, analysts and equity strategists — many of whom did not wish to be identified — brought to the conclusion that the probable impact of the stamp duty levy might amount to somewhere between Rs200 to Rs350 million.